5 things that all smart spenders do
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Should you spend today, or save for tomorrow? The former gives us a rush of instant pleasure, while the latter helps us build a solid future for ourselves and our families. It’s a well-known fact that overspending can lead you to the brink of financial ruin—just look at the lengthy list of celebrities who have frittered away their millions. However, what’s the point of putting in long hours at work if you cannot enjoy the fruits of your labour, at least partially? Excessive frugality will rob you of life experiences that you can look back upon, and may even leave you disillusioned. The key lies in maintaining a balanced approach between saving and spending, so that one does not cannibalise the other. Here are five things all smart spenders tend to do.
While reckless spenders tend to indulge themselves the day their paychecks hit their accounts, smart spenders save for their financial goals first. They usually have a well-documented financial plan in place; and with it, they have a fair degree of awareness about just how much they need to put away each month to make these dreams a reality. Moreover, smart spenders tend to put their goal-based savings on auto-mode through instruments such as mutual fund systematic investment plans (SIPs). Having saved for their goals in advance, smart spenders are in a position to enjoy the luxury of ‘guilt-free spending’, while the more incautious spenders grapple with self-doubt and pangs of conscience each time they swipe their cards. By saving for their goals well in advance, smart spenders actually have more money left over to spend in their later years, while their hapless counterparts may have to take on expensive loans to fund their goals.
Have a written budget in place
The boring old budget is the bedrock of the smart spender’s financial plan. By earmarking clear sums of money each month for things such as home purchases, dining out, electricity, fuel and the like, they inadvertently follow the tried and tested ‘coffee can’ system of bucketing monthly spends. If they exceed their budgets in one category in a given month (say, for instance, a great play hits town but the tickets cost a bomb), they cover the deficit by scrimping on another one (less clothes bought for one month never killed anyone). By budgeting and tracking their monthly spends in this manner, smart spenders ensure that they never need to dip into their precious savings pools to fund their day to day expenditures.
‘Sleep’ on large purchases
Smart spenders avoid the infamous “buyer’s remorse” syndrome by delaying the impulse to make poorly thought-out big-ticket purchases. Tempting as that newly launched, exorbitantly priced phone seems to them as they stroll past it in the mall, smart spenders rarely succumb to the impulse buy. Instead, they will head home and contemplate the purchase decision and its ramifications, with a cool mind. They consider questions like: Can I get a better deal someplace else? Do I really need this new gadget? If it still seems good the next day, they go back to the mall (or online) and buy it. Moreover, smart spenders will typically never dip into their goal-based savings to finance their wants. They understand that a seemingly small redemption, made early on in a savings cycle, can lead to a large difference in their final savings amount.
Observe ‘fiscal fasts’ sometimes
Smart spenders are known to go on self-inflicted ‘fiscal fasts’ every now and then. During these phases, they often go to extreme measures to scrimp on their monthly spends; sometimes cutting out high-ticket or nonessential purchases altogether. These purchase hiatuses could last from a few weeks to a few months, and can be cathartic. By restricting themselves to only spending on ‘needs’ and not ‘wants’ for a few weeks in a year, smart spenders effectively deleverage themselves—scaling back on money-draining, costly credit and stabilising their financial situations in the process. In doing so, they also build their willpower to resist impulse purchases that could potentially set off a vicious cycle of credit. Purchases can be a slippery slope—the novelty of a recently bought product wears off quickly. By consciously cutting the cord of desires once in a while, smart spenders prepare themselves mentally to be responsible with their money.
Don’t bother keeping up with the Joneses
Smart spenders understand that buying things to merely impress others is futile, and akin to a never-ending race, with a constantly shifting goalpost. They buy things with the singular intent of making themselves happy. They never overextend their finances and spend their future incomes by taking on expensive personal loans or strapping on EMIs on their credit cards. By consciously opting out of the garish, social-media fuelled race to outspend one another, smart spenders avoid the “lifestyle creep” syndrome which is the scourge of long-term wealth creation. As a result, their income growth outpaces their spends in the long run, leading to the creation of a robust savings pool.
Harsh Gahlaut is chief executive officer, FinEdge