GIFT City Funds
Having problems in personal finance is an age old strife that exists in all households. One can see couples usually quarrel over expenses that are considered to be mandatory: “Why did we admit him to such an expensive school?” “Kids in Other Schools are doing fine”, or “We should not have let the Air Conditioner Stay On for such a long time” to “Didn’t you notice how intense the past few summers were?” and so on. Households that struggle to meet such mandatory expenses struggle with either lifestyle creep or an inadequacy of income.
This Blog explores the patterns of spending traps and how couples can identify them and stand firm in their finances.
Lifestyle Creep:
A Steady Income not only instills overconfidence in some families but it also leads to miscalculation, on what one can afford and what one might lead to competing leads.
A Family that struggles in meeting such mandatory requirements with low income and more expenses cannot hope to live in peace for long.
There is also a conflict between spending on what one considers not worthwhile and trying to maximise the above mentioned expenses to make it worthwhile. For example one partner might argue about spending too much on a family trip whereas the other partner might argue for maximising the trip to make it at least worthwhile.
These expenses that are incurred above and beyond what is considered essential are called “Discretionary Exopenses”. Discretionary Expenses signals the financial health of a household and is driven by societal appeal. Societal appeal is what makes a family decide from where should they shop, dine and to where should they travel to.
These expenses don’t come with a predefined limit as they usually risen out of impulse and are therefore detrimental to one’s savings as well as long term, wealth generation.
Compulsory Savings:
Some families recognise their own financial indiscipline and resort to more extreme measures such as compulsory savings by indulging in random investments with lock-in periods, insurance policies that offer unrealistic promises only for them to suffer by paying large premiums. Some couples use EMIs that they need to pay post house-purchase as an incentive to save more. They are soon stuck with very little to spend on as their family grows and their quality of life decreases. The motivation for savings should directly be towards achieving well-defined long term financial goals.
Need for Diversification:
This can be an extreme case of avoiding anything that risk compromising their retirement corpus, such cases are characterized by adverse aversion to growth investments as well as conservative investment strategies where the amount spent does not exceed the principal amount invested.
Even investing a small percentage in equity diversification can significantly reduce the risks of loss that one’s portfolio might face. Such investments will enable one to leave more wealth that is more than needed in their lifetime. For example a retired couple can live comfortably in their purchased house and rely on their retirement corpus as well as a fixed monthly pension to meet their monthly bills and expenses, however they might argue over repairs over their aging house or refrain from travelling and purchasing gifts for their children and grandchildren. This asset allocation problem persists and manifests into an unwillingness to spend.
Conclusion:
One must pause to inspect and reflect on repetitive behaviors and patterns that pertain to their financial behavior, only then can we can uncover solutions from the realms of savings and investments to ward away these financial troubles. For resources on family finances you can explore this blog.
