Cut back on your current wants to build your future

Last night I was having a discussion with my neighbour about the spending patterns of consumers and what makes them buy the most frivolous of things. He said there was a time when he would himself buy things on a whim, especially through a credit card. Now, he says, he has turned over a new leaf. He has cancelled his second gym membership that he had paid thousands for, reduced eating in restaurants and has started investing in various plans in a systematic manner. “Live simply today to live lavishly tomorrow,” he calls this plan.


My friend, unknowingly, has managed to save more in three months, than he would usually have in several months, if he had continued his lifestyle. He got me thinking. Can it be that uncomplicated to save for the future? The answer is Yes. When you get money, do you save first or spend first or spend by borrowing?

Usually, when we spend on buying things, we end up borrowing. You may think, “How can I borrow when I am spending from my own pocket?” What you don’t realise at that moment is that every penny you spend on buying something that is more of a want than a need, you are borrowing money from yourself . You may think that you don’t have to pay yourself back, but this tendency pulls you away from your life dreams and goals since you do not have the money to save or invest.

An associate of mine recently presented me a study that analysed spending patterns.
An important fact put forth was that individuals forgo long term goals for instant gratification. Most of us just get a certain “high” while buying a particular product for e.g. a new pair of shoes, or going to the best restaurant in town. This habit increases borrowings.

A way to break this pattern is by making a clear demarcation between what you want and need. They are always two separate things. Though instant gratification is fun for the moment, on a long-term basis, it might not be what you need. Commit yourself towards creating reserves for your future, instead of just thoughtlessly spending money.

Investing for the future is not an easy task. I often suggest a simple trick to friends which helps them stick to their plan – I ask them to create a collage of pictures of their dreams and desires. It could have pictures of your dream house, holiday, retirement or anything thing else that you are working to achieve.

This will provide you the motivation that you need to turn these dreams into reality . But remember to not shape your future by borrowing. Make the distinction between good and bad borrowing. Any borrowing that can help you buy/build an appreciating asset (like house) is good borrowing.

Another important lesson that you need to understand is that you will need to downgrade on your current needs to move in on your future. You can cut down on some unwanted expenses and instead use that amount in a financial plan that can help you achieve your dream, goals and plan for emergencies.

The idea of downsizing now is to create a foundation to stabilise your future. Over time, this will help you become financially independent. And your dreams will be your own, no matter what...