Have you ever pondered upon what you would do with your first paycheck? Many often struggle between their needs and wants especially when their budget becomes tight. On first glance, needs and wants may seem to overlap however this is not true as needs are things like necessities that allow our lives to function normally. Whereas for wants, they are things that people want in order to satisfy their more materialistic desires such as luxury items like branded bags or clothes. This brings us to the next point, affordability.
#1 Affordability
So, what exactly is affordability? The ability to afford something is viewed as something that is subjective, and its definition can differ greatly from one another. Be it moral guilt or poor planning, we may at times tend to psych ourselves to "afford" things that are actually be out of reach due to monetary constraints. Here's an example to make things more relatable: each time a new phone model takes the world by storm, we may feel the urge to get our hands on one for ourselves. Though the question remains - is there really a need to change to a new phone, when our older models are still usable and in working condition? No doubt, the prestige and status that comes with owning the latest gadgets feels great, and it is definitely satisfying spending some hard-earned cash on something we've always yearned for. But is this way of spending viable in the long run?
As we progress through different jobs and grow in terms of earning power, we may find ourselves being able to afford things that were previously nothing more than a mere dream. At some points in life, we may perhaps feel the inkling to begin "upgrading" and paying more attention to parts of ourselves, be it dressing better in more branded pieces, or owning more big-ticket items such as a more extravagant house or car. Yet on the flip side, some of us may find ourselves with regrets the moment we realize that we have no savings to fall back on during rainy days, especially due to prior failures to save sufficiently. In turn, these few of us may have little choice but to live from hand to mouth till the next paycheck comes in, promising not to overspend again (which admittedly can be quite stressful). It is a vicious cycle that no one would enjoy being stuck in, and it is definitely wiser to stay out of the right from the very beginning if possible.
#2 Think Twice Before You Act
To think about it, is it really worth it to spend all that money on our wants, only to end up spending the rest of the month skimping and saving on meals? Perhaps a better (and less stress-inducing) option might have been to put that same amount into savings or investments, generating some interest to tide through inflation in the years to come. Sure it may sound boring, but it is indeed something that is more valuable to future-proof ourselves against life's uncertainties.
Having that said, it is not wrong to treat ourselves and spend money on our wants, though it should be done with careful thought lest it mindlessly creates a financial mess for ourselves. The satisfaction and temptation of acquiring new items will always be there, but when that euphoria wears off, there will be more to cope with in order to keep that acquisition.
Let's use an analogy to visualize things: imagine your monthly salary as a jar with limited capacity, a bunch of large stones representing our mandatory basic needs (i.g. food, housing loan and savings for rainy days), and some sand presenting money set aside for leisure (i.e. entertainment expenses and wants). Here comes the question - would you place your big stones in the jar first before filling the remaining spaces with sand, or the other way around? Fitting both the stones and sand into the jar would definitely be a tough challenge, but the wiser choice here would be to “ not save what is left after spending, but spend what is left after saving “ as quoted from the wise Warren Buffett, one of the world’s most successful investors.
#3 Financial Future
One piece of advice is to always be on the lookout to acquire assets and not liabilities. This may be more on the technical side, which can be a hurdle to get over especially when we're just starting out on our financial planning journey. Fortunately, it is not something to sweat much over, as professionals such as financial consultants could also step in to offer a helping hand, assessing our financial health and provide detailed analysis and solutions. Everyone’s status of financial health and financial needs may differ. In light of that, the advice given to each individual is unique from case to case. Keeping in check for our finances is akin to having an annual health checkup, except that this is for the longevity of our finances.
Planning for one’s future is crucial especially for retirement and largely depends on the amount of effort that one puts into allocating their money. Let’s make our lives easier by having our money work hard for us and start planning ahead to be responsible for our own future!