Soaring spends and smaller storage spaces
You can lean over to the spending side every now and then, but ensure you remember the big picture numbers
Over the last few months, I have struggled with two seemingly trivial yet very significant issues which are now taking up so much mind space that I must share the dilemma. Unsurprisingly, I find myself caught in a spending spiral which is clearly documented in the ever-rising credit card bills. This alongside reducing storage space in the house is becoming a bother. It doesn’t take a genius to decipher the link between the two. It has, however, taken all my cerebral might to figure out how I might be able to reverse the equation.
The problem isn’t paying the bills, which get paid every month on time. However, the clutter of unnecessary stuff in the house is becoming an issue. The other part is the niggling guilt that threatens to surface with every swipe of my card.
Notwithstanding the easy access to buying stuff, I am not an addict or shopaholic as the term goes. On the contrary, investing purposefully is a more conscientious choice. A friend once suggested that buying one luxury brand hand bag a year is a must. These cost upwards of ₹1 lakh. My instinctive reply was, I’d much rather invest that money in equity. For all the simplicity embedded in that answer, I still find credit card spends increasing. Most things seem logical—petrol payment, air tickets, tennis rackets for the kids, a Nespresso machine. Admittedly, the last one is rather an indulgence by the husband for a delightful bitter cup every few days. But it’s at the core of my troubles; it takes up too many inches on the kitchen slab, is not used often and dents the credit card bill by a few tens of thousands of rupees.
Now, if the bills are paid off every month and investments are on track, then what is the problem? I think the uneasiness happens because of the randomness of the spends. Or maybe I am a greedy investor and guilt stems from the fact that practically speaking every new pair of shoes could instead have been an equity stock, left to grow for years. Then it occurred to me to look at the numbers. What numbers?
It’s not about the spending or over spending—rather it is about knowing for sure that today’s spend doesn’t take away from the grand plans of tomorrow. For the numbers, I went back to the drawing board, the excel sheet—tick marked the contingency fund, life insurance and mediclaim. Focus shifted to critical spends or what you might call financial goals like higher education. This is not an easy exercise. One must quantify how much will be needed precisely, in which year and then work backwards to match investments. I have an existing investment basket today and there will be increments added to it. On a simply defined timeline of 2018, 2019, 2020 and so on I mark out the big-ticket expenses in one column and the investment pool in another adjoining column.
Against the timeline expenses are marked items like undergraduate fee, post graduate fee, retirement and so on. Alongside that in the investment column the basket grows every year at an appropriate rate with additions as they happen and withdrawals built in for the years with big expenses. This gives me an idea about what is there today, how it will grow, annual additions and reductions when the spends happen.
I did, of course, inflate the future costs and gasped at the figure I arrived at for the retirement kitty. This last number can get fuzzy as it’s difficult to precisely ascertain lifestyle expenses after 20-25 years sans children and big city expenses. Nonetheless, it doesn’t hurt to err on the side of over-estimating rather than underestimating it. To me, numbers don’t lie. And what they said is that I was falling short by about 30% in the retirement kitty. Clearly, the gap can be bridged by investing more today. But how much more?
Arriving at an exact number can get complicated, thanks to assumptions. Nevertheless, it is worth undertaking the exercise to arrive at an educated estimate. The more honest you are, the more accurate are the results.
The message I received is clear: slow down on random spends, resist the charm of flea markets and pull back into the investment kitty for luxuries to continue through retirement. After all, post-retirement life can be 20-30 years of no active income. Just seeing the numbers has cleared up my head. The earlier dilemma—a mixed bag of guilt, gratification and joy—all linked to spending has taken a logical shape in those numbers.
I once read somewhere that if you want to become rich, think and spend like the rich do. Never having tested the philosophy, from a realistic window, it can be said balancing the money beam is not about building walls between spending and investing. Rather it’s a lightly drawn line, you can lean over indulgently to the spending side every now and then, but make sure you have the big picture numbers banked clearly in your head. These numbers and the message can vary, but it is what helps me every time. If that excel sheet seems too daunting, get help but get it done.
Lisa Pallavi Barbora is a consultant with Mint