In my journey through life, I have come to understand one thing about money. How anyone spends it or invests it really depends on his/her attitude towards money. This is shaped by multiple factors such as your family and social background, your experiences regarding money both positive and negative and finally what it really means to you. There is no general conclusion that one can draw in this matter as attitudes are entirely individual in their nature. However, your financial life and the success / failure of it will be shaped by your attitude towards money.
When I think about my own attitude towards money, a lot of it has been shaped by how I lived as a child with my family. As an engineer my father had a pretty stable, if not overly happening, job with SAIL. We were a family of five and our living standards were fairly good for those days. We grew up studying in the best convent schools, had a fairly large house to live in and had an overall comfortable life, if not lavish. However, we knew all along that we needed to be responsible about our spending and directed it towards more important matters. For example, when I was preparing for my Engineering entrance exams I would spend 20 Rs on buying a good reference book as opposed to having a good time at a movie. Not that we did not get to see movies, but you get my point.
As I went through my Engineering education from Jadavpur university and later my MBA from IIM Calcutta, I could see that our family resources were stretched with being able to afford it. This was compounded by the fact that my sister was also studying Medicine at the same time.As during school, we both had a great college life in Calcutta as well. It taught me a very important lesson – the amount of money you have does not have to determine your happiness in life.
In a way my background had shaped my attitude towards money by the time I started working. I saw it as something necessary to be able to do the things you want in life. It was important to be responsible with money but not be overly concerned about it. You need to feel good about how you are spending your life and that will drive everything else.
One of the things that I have been uncomfortable about is taking loans for any spending. This stems from my attitude of responsibility which tells me that I can only afford things that I have earned for. Now, I understand that at times you need to take loans for asset purchases and I have reconciled to it. The two loans which I have taken were for buying my first car and our apartment in Chennai. I paid off the first in one year and the next in about 3 years. I do not believe in taking loans for any consumption related purposes.
The need to direct spending to the areas that are important to me and my family has been the other important aspect of my money attitude. For example, I have always wanted my children to have the best of education, be it in a good public school or now in one of the better private Engineering colleges. I really think how people grow up as individuals has a lot to do with education and quality institutes groom you in a much better way than others to be able to face the competitive world today. How my children have shaped up so far lends credence to my beliefs.
Responsibility does not mean that you cannot lead a good life or have some indulgences. I have always been fond of cars, travel, food and reading. These are areas where most of our family members concur on, so it has been easy to spend money there. I have bought 3 cars over the years apart from the 3 that I had through my jobs. I do not think that a car just takes you from point A to point B, it is so much more than that. Similarly a good meal dining out or buying a good book cannot be justified in financial terms, it is really the emotional satisfaction that you derive out of it.
As far as travel goes, I had purchased a Time share way back in 1996 when it was a stretch for us. Over the years we have spent a lot in fees and other charges but it has given us the opportunity to go on a great vacation every year for the last 19 years. Again, this cannot be justified in economic terms as the value to our family has been priceless.
What about investments then? I have believed that investing wisely is important as achievement of financial independence was always one of my primary goals. However, I saw early in life that if I had to balance my investing needs with the spending needs that I had then smart investing was important. This led to my focus on equity as an asset class to invest in. I gained knowledge in it as it was important for me to understand things well in order to increase my chances of success. In the last 15 years or so my investments in equity has enabled me to reach a position of financial independence.
What is my take on lifestyle creep? I think it is an inevitable thing and do not see it as undesirable, so long as we do not go overboard with it. For example, we travel by air when we go on vacations now and that is quite all right in my opinion. At the same time, taking a loan for someone to go on a cruise you cannot really afford would be going overboard. As long as one is sensible, lifestyle creep can be seen as a positive ambition which will drive you to earn more income.
So how does this all translate for my expenses over the years? I will cover that in a future post.
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