Written by Pavani Soni
The self-help sections in bookstores are replete with texts on ‘How to be rich (quickly)?’. There are numerous courses and discourses on means of generating passive income, exploring side gigs, and becoming the rich dads. With an expansive life expectancy, it’s natural to seek sustenance beyond regular employment. But there’s another side to the equation—how to spend your money. And that’s a department where not much of a wisdom is available, for it’s left to one’s conscience and better judgment. Could there be best practices here: The art and science of spending well? Here’s a humble attempt.
We often tend to spend our money in a counterintuitive, rather a counterproductive manner. If you were to spend money on stuff that you use daily versus that you use rarely, what will you rather do? Most likely, you will spend more money on frequently used stuff than the less frequently ones. But that’s precisely where our logic fails us. We often tend to spend a vulgar amount on fancy vacations, heavy jewellery, expensive dresses and other possessions which are rarely used, if ever, while cutting corners on a daily basis. What if you spend more on the more frequently used?
Let’s look at the graph in figure below. The x-axis represents the Frequency of Usage – from Daily to Rarely, and the y-axis depicts the Expenditure, from Low to High. It shows that as you move from the daily usage items to rarely used, you must wisely throttle your spending.
How to spend wisely, on what matters daily
There are two categories of expenditures:
Category-A: Daily use items for consumption. These include mattress, chair/ table, daily wear, food, specs, kitchen/ living, personal hygiene, fitness, laptop/ mobile, workspace, furnishing, hobbies, books/ stationeries, car (interiors), entertainment, and paid content, among others. The list is actually not so big, if you get to it.
Category- B: Rarely used items, but very costly. These include jewellery, holidays, farmhouse, partywear, car (exteriors), and weddings. They are primarily meant for signalling. Most people take high interest loans to meet their category-B desires, at the cost of category-A needs.
The simple idea is that the stuff of regular use, which is more of consumption, should get precedence over stuff of rare usage, which is meant for signalling. You should rather spend lavishly on a chair on which you sit for seven hours daily than on a farmhouse that you visit two days in a year. But nobody sees your chair!
If the idea is to gather happiness, understand one thing: happiness stems not from the intensity but the frequency of events. What will make you happier: One large increment per year, or several smaller ones over the year? Incidentally, the latter. But your employer keeps you on the hook with once in a year bonus. The joy of life is not at the end of the turn, but along the way. It’s about the number of times you can create instances of happiness, even in small matters, than waiting for that big pay-off. On a daily basis you have several opportunities for creating that happiness, provided you are willing to re-think your spending decisions – of time and money.
Hope the next time you spend right.
Pavani Soni is the bestselling author of the books ‘Design Your Thinking” and ‘Design Your Career”.