Tuesday, 5 March, 2013

The Malaise of Impulsive Splurging!

The Malaise of Impulsive Splurging!

Came across an interesting article:

The above article triggered a few thoughts in my mind, perhaps unrelated thoughts.

Over the past several months, I've been observing a rather significant increase in impulse spending by people at malls, fruit & vegetable shops, neighbourhood grocery stores, book shops, platform shops, restaurants, theatres, etc. And this trend seems to cut across all kinds of people irrespective of their gender, age, religion, financial status, employment status, caste, creed, etc. Only the degree appears to vary based on their financial position.

While an Ambani or Birla scion may buy a nice Maybach car based on impulse, your servant maid may go and splurge on movie tickets for her family costing 25% of her monthly income. And you may be guilty of buying that fancy Samsung Galaxy. Your net-savvy senior citizen dad would have probably been buying a dozen old movies online from the comforts of his home at the same time!

People just go ahead and buy virtually anything that catches their fancy without necessarily bothering about whether they

  • Need that stuff
  • Need the quantum that they are buying
  • Already have it at home
  • Can afford that expense
  • Can postpone the expense by a few days / weeks / months

Believe me. All such expenses being incurred by all and sundry may perhaps be beneficial for stock market investors like me who may own shares of the company whose products and services are being consumed.

However, for the vast majority of the readers of my blog (who belong to the typical middle class), it makes sense to pause, think, and introspect. I'll not go to the extent of your grandma and give you a sermon advising you against splurging money on wasteful items. However, I'll suggest that you spend 3-4 hours in the coming weekend indulging in a potentially interesting exercise:

  • If you're maintaining accounts, try to go through the same and identify all those items of expenses that you consider wasteful or excessive in hindsight. Note them down and add it up at the end.
  • Sit down with your family members and jot down from memory a list of all your entertainment / luxury expenses that you incurred in the past couple of months. This would include stuff like dining out, movies, cricket matches, vacations, etc. Note them down and add it up at the end.
  • Conduct a visual audit of your home by walking around your home and preparing a list of all the "goodies" that you have bought in the last few months. This would include stuff like mobiles, tablets, kitchen equipment, exercise equipment, books, cameras, furniture, works of art, etc. Note them down and add it up at the end.

Now that you've got three lists, calculate the monetary impact of all the above. This will give you an idea of where your money has gone in the past few weeks / months on "discretionary expenses".

Result: You are now financially aware of where your money has gone. Now you are at liberty to sit down with your family members and take a call on which part of your spending can be considered:

  • Essential (and hence unavoidable)
  • Desirable (and hence OK)
  • Wasteful (and hence ought to have been avoided in the first place)

Calculate the monetary impact of the "desirable" and "wasteful" expenses that you have incurred in the past few months.

Identify two alternative ways in which you could have spent the above money in a more effective manner. (For instance, a down payment for a second home or an investment in a mutual fund to be used at the time of retirement or a piece of jewellery for your beloved daughter)

Having done the above, you can perhaps draft an action plan on any corrective steps that you wish to take. If you still feel that you don't wish or need to take any corrective steps, there are only two possibilities that I can think of:

  • You're so rich that you can afford to splurge as you like - please pass on some of your surplus money - I can use it rather effectively!
  • You're so adamant that you have no desire to either learn or change - in which case you would not have read this blog all along. And surely, you wouldn't have reached this sentence - hence this last sentence is obviously redundant.



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