Thursday, March 19, 2009

Should I save or spend?...that is the question

A question perhaps as profound as Hamlet’s ‘To be or not to be’; that it is top-most on our minds during these days of pay-cuts; uncertain jobs and drying up finances. We all want to hold on to our hard earned money, for we don’t know what could hit us next. Naturally therefore, we have switched to the ‘save all you can’ mode. To add to that, we Indians have been brought up constantly reminded by our parents to first save and only if absolutely required; spend.

On the other hand, we as consumers seeking to improve our standards of living – are gripped by an urge to add that popular brand to our wardrobe; get that elusive diamond pendant or give that long overdue face-lift to our living rooms as they all seem to be within reach, thanks to the fact that most brands and retailers are offering the best deals and the deepest discounts heard since Adam. Alas, all of these will make us part with what we are desperately trying to save. To make matters worse - the TV channels, newspapers, bill-boards and store-fronts are teasing us for being shy of malls and showrooms. But then, how do we reconcile this dilemma…should we save (that tomorrow may be bleak) or spend (like there is no tomorrow!). Isn’t that where we began?

I presume that most of us budget our monthly expenses for different types of expenditure – food, clothing, entertainment etc. If not a very definite number, we usually set an intrinsic threshold. In most cases it is dependent on our incomes and our lifestyles. Incomes are constant...and may now be under pressure, but lifestyles are well within our control. In better times, we may have become too generous to the extent of pampering ourselves to the spoils. Now definitely is a time to pause and think about all our expenses.

And I bet that if we look closely at our expenses every month, we are bound to identify one or two areas of our lifestyles that we are splurging on…It could be dining out as a family for example. It is one thing to dine out with family and friends to break the monotony of eating at home and it is another to become so lazy that we get used to our favourite restaurants that even the chef knows our entire family by their first names! The chocolate soufflĂ© or badam halwa for dessert notwithstanding! Have you thought of the couple of hundred rupees that you’ve just saved? Some of us are so addicted to the pampers of home-delivery that we haven’t stepped into our kitchens for weeks!

My point is, that the moment we reflect on our (taken-for-granted) spending habits we will be able to identify wasteful expenses and cut down on them immediately. This will save any middle class family a few thousand rupees every month; and that can go straight into savings.

A recent survey of 100 households across the country tried to capture the spending and saving trends of families during August 2008 (when the inflation was close to 13%) and during November 2008 (when the inflation dipped to 8.5%). The spending hadn’t decreased, but neither had the saving increased. The survey had interviewed a cross-section of the society, with families whose monthly incomes as low as Rs.5000 to as high as a few lakhs of rupees. The respondents were quizzed on how much they spent on food, entertainment and clothing and how much they ended up saving every month. It was an eye-opener to discover two things. One; a family earning Rs.5000 a month could save Rs.1000 (20%) while a family earning two lakhs a month was able to save only Rs.10,000 (5%). And two; all their known areas of expenditure - food, entertainment and clothing - plus their savings, especially for middle class households, did not add up to what they earned! It only goes to prove that the better times had made many of us spend unknowingly or unconsciously (or perhaps carelessly). The inflation has dipped below 5% now – even fuel is cheaper, leaving us with a few spare coins in out wallets.

These are times when even the most coveted brands are available at a discount – and if you have been eyeing the advertisements for that new Hugo Boss shirt or a Chambor lip colour or that expensive wrist watch and if they are all now available at much below their normal prices; it may be a good idea to ‘invest’ in them. I say ‘invest’ because, obviously they wouldn’t be so sought after by us if we didn’t believe they could add tremendous value to our personalities. I am not for a moment, suggesting that we splurge. I am also not suggesting that we swipe the embossed numbers off our credit cards and live in debt forever. I am suggesting that we spend judiciously.

While it would be foolish to be reclusive and let go of the opportunity to save that 50% or 60% that those desirable brands are offering. It would be disastrous to also let our greed take the better of us and end up shopping three suitcases full of clothes! Judicious spending is when we are able to become aware of our reckless spending habits and religiously stick to our trimmed budgets – the deep discounts will surely help pick up that one extra well crafted trouser or that well designed top – now, go pick them up without guilt!