Fear and greed. These two emotions can cause havoc with your portfolios. The tendency to be fearful when the markets fall and greedy when the markets rise is indisputably disruptive to wealth creation. But when it comes to women and money, there is a third emotion at play, one that’s far more perilous than the two common bedfellows above. It’s a shadow that follows you everywhere.
It’s called guilt.
Guilt is more dangerous than fear or greed because these two emotions are largely caused by external factors—the fall and rise of the stock market, for example. You can reason with fear and greed and avoid their traps if counselled well. Guilt, on the other hand, is your conscience keeper and doesn’t go away easily.
Guilt is an internal conflict where you have not lived up to your expectations. Logic and reason fade away in front of it and the subsequent overcompensation to assuage these feelings is what often causes financial misfortunes.
Women, regardless of whether they are professionally employed or homemakers, are wired to perennially feel guilty.
Working women may feel guilty because they haven’t spent enough time with their children or their partners, haven’t spoken to their parents more frequently or missed the last parent-teacher meeting.
Homemakers may feel guilty because they think they haven’t contributed to the family’s finances, not monitored the children’s studies enough, blown-up money in the beauty parlour, not cooked a perfect meal…. The list is endless.
I find that these feelings of guilt typically manifest themselves into spending, which eventually leads to further guilt. Spending works like a wonder drug—the keen anticipation before the spending, the high during the splurge and then the crash when remorse sets in. It is a vicious cycle.
Take the example of X, a single mother of two teenaged boys. She worked in a large multinational firm, and drew a fairly decent income. For many months, X’s income was just enough to fund expenses, leaving no room for savings. We eventually clipped her expenses and got her to put away some money regularly so she could reduce her home loan and its instalments.
At the end of 2 years of this exercise, she had built a sizeable kitty and I counselled her to use this money to reduce the home loan.
I met her a few months later and realised that the money had been spent instead on a vacation to the US. “There’s no point in earning money if I can’t use it to buy happiness,” was her stoic response.
On probing deeper, she revealed that her boys had coerced her into spending on the holiday since their classmates were holidaying in foreign destinations. Even though X was acutely aware of the financial jeopardy she was putting herself into, she buckled under the guilt of not providing for her children well.
Her momentary happiness was about to cause her several years of despair. With only a decade of working life to go, and no significant assets to her name, she was severely compromising her future goals.
Yet, on average, women aren’t big risk takers nor are they profligate. They are innately aware of the family’s financial requirements. This is especially true among women in the lower strata of society.
Muhammad Yunus, founder of microfinance institution Grameen Bank, famously learnt that when you give money to a man, he uses it for his own needs but when you give it to a woman, she uses it towards the upliftment of the entire family.
The guilt associated with spending essentially comes from not knowing where you stand financially. This is easy to manage. It all boils down to letting go of your fears about spending and saving, and understanding how much you can spend.
If you create four distinct spending silos—essentials, long-term goals, emergency fund and discretionary—you will free your mind from the guilt of spending on yourself.
Essentials would include routine expenses: loan instalments, insurance premiums and rentals. Long-term goals would be education and retirement goals. At least 6 months of expenses must be accumulated to handle sudden emergencies, preferably in a liquid fund for higher returns. The remaining money is discretionary and can be spent without guilt.
Discretionary spending should be trimmed down first if you find you are living beyond your means. However, if you aren’t, you have certainly earned the right to spend on yourself.
A financial planner can bring clarity to your finances, crunch the numbers and project retirement charts with a fair degree of accuracy.
A looking glass into the future, a financial plan prompts you to alter your course today if things don’t look satisfactory. However, if the charts look healthy, there is no harm in spending more and upgrading your lifestyle.
There are several instances where I have counselled my clients to spend more. Very often such customers are not only able to meet their financial goals comfortably, they also end up bequeathing a large estate to their heirs, without consciously planning to do so.
If bequeathing large assets is not a primary objective, then the money can be used to upgrade their current lifestyle.
I often ask my customers, if today was the last day of their lives, would they regret not having spent more? What would your answer be?
Priya Sunder is director, PeakAlpha Investment Services Pvt. Ltd