Most of us agree that the purpose of earning money is to have a happy life. While spending money definitely brings in greater joy than the effort involved in earning money!
Spend or save, have fun today or delay it to tomorrow, these are the questions that we sometimes face. A simple example: continue with the current smartphone model or upgrade to the latest smartphone, home cook or takeaway order, mega buy on an online sale or buy small lots every quarter.
Every choice is based on our requirement, its criticality, budget and disposable income. In the midst of the enormous clutter of information available, it definitely helps to have the experts on your side, for example, Certified financial planners, who help families create a workable financial plan to create wealth and achieve their life goals in the best way possible.
How should we go about planning our wealth creation journey?
First, define your goal, your money decisions will follow accordingly.
Your goal will require you to dedicate time and money to achieve it. This makes it an effective method to decide if your big fat bonus should help you pay off the expensive credit card loan or go for your dream world trip.
Second, plan your financial goals, to ensure you can enjoy your life both today and tomorrow when you get to the retirement age.
This means taking responsibility for one’s lifestyle at 55, even if you are only 30 today. Consider the option of saving 10% of your income for tomorrow, making sure it grows in the best possible manner to ensure a comfortable retirement lifestyle.
Alongside, you do want to enjoy life before you get there. Categorise your investment basket into one which will not be disturbed for the next 10-15 years, and another fund for all your near term spends such as school fees or parents health or vacation etc.
Finally, accept that you alone are responsible for your money choices and the corresponding results.
While making your decisions, preferably take the inputs of a qualified professional like a certified financial planner team. Understand the pros and cons of an option and ensure that you have a working relationship with your financial planning team, to make the best of their skills.
Of course, one of the most common blocks which come up while thinking about financial planning is that we tend to think, once we have more money, we can plan to save and invest. Let me get there first…
Now, to be honest, we can either acknowledge that we have a money situation which is uncomfortable and requires professional objective advice to get better or we continue as we are.
To get better at managing our finances, we may need to let go of a few not so great spending habits. A few typical habits some of us experience are,
- Impulse buying at a store or while browsing online
- Overspending on your restaurant budget
- Guilt induced shopping because both parents are working
- Overspending at the duty-free counter at the airport
In most of the above, before you know it, the shopping cart is going ka-ching!!
There is absolute happiness at swiping the card and a little guilt when the bills came in later.
So, if one has identified the issue, what can the next steps be?
Decide which habits you want to break – check with your family or close friends with an open mind, you could find valuable inputs.
Replace the weak habits with good ones – start with a few steps today,
- Make spending goal-based – be it child’s education, buying a house or a car.
- Budget your spending – daily expenses, school fees, vacations, each one a conscious choice.
- Invest for tomorrow’s spending i.e retirement – set aside 5-10% of your monthly income for investment. Remember money compounds when you give it sufficient time to grow.
- Observe your spending triggers – it could be hunger pangs when at the local bakery or the late-night browsing when you saw your favourite coloured tie and shoes. You bought them and used them once. An option, park the selection in the cart, sleepover them till the next day and then finalise your purchase. You will find a lot of decisions get managed better.
- Ask your trusted family member or friend to help you as an accountability partner – make sure both of you are comfortable discussing your money goals. This will help you to soundboard your prospective purchase options and make the best choice.
We hope you found this helpful and actionable.
In conclusion, this simple line by Warren Buffett should help us all times,
“If you buy things you do not need, soon you will have to sell things you need”
