Remember in the not so recent past when we left school and “X” rupees were a lot of money (Since the audience of the blog is of diverse age, I’m going to let you assume a number for “X”). Since I left college around 2010 I’m going to stick to 10k rupees for argument sake (and many entry-level school leaver roles paid approximately 10k a month at the time). I mean we’d still find numerous ways to spend it within a few minutes but still, it was a considerable amount of money and it was worth a month’s work.
As a teenager, many of the fancy items we wanted were out of our reach. There was no way my entry-level job was going to fund my dream lifestyle (I mean I watched “Pimp my ride” and “CRIBS” don’t blame me). The list of items included but not limited to the latest mobile phones, gaming consoles, high spec laptops, designer clothes, fancy cars, etc. Ladies I know you had a different list but you get my drift.
If you play your cards smart, as you level up in life many of the things you wanted comes within your reach. It might not be at the exact level you anticipate (very rarely are we going to be able to afford a mega-mansion or a few La-Ferrari equivalents in the carport) but realistically speaking decent substitutes that serves the purpose. This brings us to the question why do we constantly splurge?
Lifestyle Creep
Today’s materialistic world is pushing us to make a statement in everything we do. Organisations are hiring psychologist and psychiatrists to exploit the minor nuances of the human mind. We are being programmed through every commercial to buy into a systematic push of branded goods. The water we drink, the cars we drive, the food we consume, the clothes we wear and even the air we breathe, the list goes on.
If you are to win the race of financial independence then you got to fight your inner demon’s endless scream for branding and may be objectively looking at what’s the final purpose of the product you want and does an alternative cheaper product deliver the same outcome. Please don’t come yelling at me about inferior quality and lesser utility. Remember being financially independent is more of a mindset opposed to how much money you make.
In my previous blog post, I discussed how a majority of us exchange time to pay to make a living. That is, we are mostly in the slow lane to being financially independent. For us to expedite our goal we need to keep our expenses low (while drawing the same salary) and invest the rest in a smart way. The trick is to avoid the lifestyle creep which occurs to most of us after our annual increment.
Remember how you functioned last year before your recent increment but surprisingly now you have managed to upgrade your lifestyle so your increment is almost non-existent. The magical word that describes the process is lifestyle creep, where your standard of living improves with your income where former luxuries now become new necessities. The culprit may be D- for Danger by MAC or PI- Air by Givenchy. Observe that magical credit card bill or the bills that get collected in your wallet. It’ll whisper to you, on why you are financially helpless by the end of the month.
How to approach spending?
1. Is this a necessity?
Examples include utility, clothes, vegetables, housing, etc.? If “yes” don’t evaluate.
If it’s a necessity there is no argument on spending money on it. You may have an option of evaluating your lifestyle patterns on reducing this expense (Setting the air conditioner on a timer, investing in solar, the size of the house you require, etc.)
2.Is this a nice to have? If so is it worth my time?
Have you ever contemplated, I already have three pairs of trainers but I don’t have one in blue to match my gym attire? These kinds of life-threatening questions need to be evaluated in a different manner.
Every time we decide to buy something we don’t spend rupees buying it. If you observe closely we are paying for things with our life. Let me illustrate this to you with a basic example.
What’s the total number of hours you spend at work? Majority of you would say 9 hours. I’d beg to differ because we wake up way earlier than we require, to prepare to get to work. Then when we account for our commute to and from work it’ll approximate to 12-15 hours a day depending on where you live. An average person is supposed to sleep a minimum of 7 hours a day leaving our effective hours at 17 hours per day. So even though we directly spend 9 hours a day at work we are losing somewhere between 70% to 90% of our effective time to facilitate it.
Hypothetically let’s assume you make 100,000 rupees a month, the hourly earning approximates to 290 rupees an hour (15hours * 23 days= 345 hours; 100,000/345= 290 rupees an hour).
So, next time you want to spend to 10,000 remember you are trading 35 hours of your finite life on purchasing it.
Every time I have shared this rationale with my friends I’ve been told they don’t need that kind of negativity in their life. All I’m doing is setting up a yardstick to measure your purchase. There is no one stopping you from splurging. You can still be oblivious and be guilt free if you want to, but I guess you are still reading this post because you want to actively make a change in life.
3. Spend money on things that make you money
Effectively spend time on things that save you time. The more assets we accrue the easier our journey becomes to be financially independent. It may be shares, lands, corporate bonds, fixed deposits (passive income).
This could also include rental properties, equipment that’s required to get your side hustle rolling (camera equipment, gardening tools, knitting machines, etc.), other entrepreneurial ventures that have positive cash flow (active income).
Remember the key is positive cash flow and anything that generates positive cash flow is an asset.
Follow this space to understand more on assets, liabilities, personal finance, and financial independence.
Enjoy what you do and don’t live for the weekend.