Saturday, June 14, 2008

How rich / poor are we?

There are two types of people:

Type I - Mindless spender

They are well-employed with envious amounts of salary, but are always in debt. For example, when in need of medical attention they will try to save a few hundreds rather than go in for good quality medical care for a few hundred extra. Or, they will look for a lender. The same guys won't mind spending a few hundreds on an avoidable outing or a party, or picking up an expensive watch or jeans in a mall when actually they don't need to.

Type II - Thoughtful spender

They are not in highly paying jobs, but always have money to spare for anything urgent. They may not flaunt the latest gadgets or zip around in swank cars, but they are the types who usually won't be found wanting when money has to be spent for something useful.

Which is important: income or expenditure?

We always think it's income, but think again.

A person earning a moderate income with frugal and prudent spending habits could actually be richer than a person getting a fat pay but having extravagant habits.

A few us were recently discussing how difficult it is to buy a house, and how generally life is getting hard on the monetary front. Is chasing a high(er) income job always the best solution? Does high income alone guarantee us enough money when in time of need?

After falling into a bit of tight spot,I have realised over a period of time that a bit of economising can ease the pressure on the purse and can actually work wonders, even while having the same income level. It's not about being a miser or cutting out completely some purchases. One needn't stop seeing movies or eating out or even driving out when petrol prices are going up.

We all need to indulge in a bit of luxury, when we need to splurge without any reason, when need to buy something without looking at the price tag. The key here is how often we should do that.

The trick is spacing out

Couples are told about the need to space out children when they plan family. The analogy works well here with finances as well.

When guys and girls in late 20s, struggle for money even when they are earning around Rs 50K, the paradox is so striking. They need to realise that they have to space out spending before they can think of spacing out kids.

I took the liberty to ask one, "Why don't you space out your extravagance? Instead of going to the pub every weekend, why don't you keep it to the first Saturday of a month? Why don't you take the bus when possible instead of hopping on to the auto always?...

The New York Time's oped columnist David Brooks in an article 'The Great Seduction' on June 10 questioned the spending habit of Americans. He says the morals on which the USA was built is all but gone; the nation having fallen to mindless consumerism.

America is one country that encourages you to spend; in fact to spend more than what you earn. No money? Don't worry, we will lend you some. Can't repay? Don't worry, we will strike a deal that will help you. What the consumer doesn't realise is she is slowly but surely sinking into the quagmire of debt. As a wag sarcastically quipped once: Americans work hard always, not because they love work, but that's only way they can clear their debts! May be one sure way to make lazy guys work!

Young Indians, many of whom now earn more than what their parents earn, are dangerously getting influenced by an American trait that America itself is introspecting over and probably even trying hard to shake off.

With economy in the US slowing down and everyone talking of hard days ahead, it's not the US alone that's hit, but people around the world. I think we all -- consumers as well as entrepreneurs -- should do a bit of scaling down; it's hard but I doubt if there is any other way out.

As they say, don't bite more than what you can chew. Thrift may never get you all the luxuries at the speed of thought; but the chances are high that you may have money when you need the most.


'The Great Seduction' by David Brooks, The New York Times, June 10, 2008


  1. Excellent write up Pradeep. Just as you said, I too get into a tightspot after spending mindlessly. Need good reminders like this once in a while... works like a rap on the head.

  2. Hi Pradeep, This one is a real eye opener. I have the habit of splurging once in a while, but always get back to my senses soon. Its funny that my father was able to build a beautifl house, spend for 2 marriages, educate us, all with a salary of Rs 10,000 per month, while I am yet to buy that dream house despite the fact that I earn more than 5 times of what he earned. Taking refuge behind increasing costs is not an excuse anymore!

  3. This is exactly what shocked me about living in a metro in India.

    I'm from Switzerland, and Swiss are notoriously frugal people, so when hubby started wanting all the latest branded things around and said "Don't worry you can pay appliances and electronics by EMI" I was a bit stunned, because in Switzerland you can't do just that, you save up money to buy your fridge cash, and it's ok if it's not the latest model, or...gasp...second hand! Watching the Gen-next in India spending so recklessly has always been a a shocker on me. And yup Hubby is paying his debts now, but he still need to learn how to space out, because he has the tendency to space out the buy of essential goods, so he can suddenly buy a totally un-necessary thing right away suddenly saying "It's ok baba we will use the credit card"

    Maybe it's time to teach kids about finance in school, because telemarketers are selling loans and credit cards like candies around here.

  4. Thanks Indrani and Vidya for sharing your thoughts.

    Vidhya, same in my father's case... with an average salary of school teacher he taught me, and built a small house, and never took loan. All by saving up money... We need to learn something from that.

    Cyn, thanks... after a long time... You have made a very interesting point. Surely our youngsters need some instructutions on how to spend money.

  5. Excellent Writeup, this. Its an eye-opener.

  6. There used to be times when saving first and spending next used to be the rule. It is, unfortunately, becoming the other way round now - only saving is taking a back seat now.

  7. I keep returning to this post: but am commenting only now..

    you have written it so well.

    It is a fact that the more income one has the more you spend and in the end you are in the same place. Maybe you would have a few more luxuries but sometimes you end up with those luxuries which you never gave a second thought when your income was lower.

    Some of our spendings are indeed meaningless.