‘What do you think of the market?’ is a question I most often face from viewers, readers and members of the audience, as a practicing financial planner. The reference here is to stock market and more specifically, to the Sensex and Nifty. Honestly, no one can, with accountability, can predict the future.
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Let us assume because of some supernatural powers an individual knows the direction of the market. Still, is that really useful? “Son, Sensex is down 10% since beginning of the year, let us postpone your marriage plan till such time the Sensex comes back to its original level.” What are the chances a father will ever say this to his son?
Requirement of funds to fulfil our financial goals cannot be dependent on the level of Sensex. Also, while we have no control over or say in the movement of the Sensex, our financial responsibility and dreams still need to be fulfilled. Beyond a point, the level of Sensex doesn’t matter.
My Sensex
Instead of trying to gauge the level and future of the Sensex, we must focus on ‘My Sensex.’ ‘My Sensex’ is ‘My Sensible Expense.’ We can even call it our family budget or cash-flow statement. One of my lady clients once said, “Gaurav, the word budget scares the life out of me. I prefer calling it spending list. This gives me a lot of relief.” To her, budget is restrictive but spending list sounded like freedom to spend.
There is no way I would want to preach on delayed gratification, being frugal or spending versus splurging.
These are subjective. To a teenager or a young lady who has just started working, using the French cosmetic brand Estee Lauder is certainly splurging, but to a fashion model, it is an occupational need. My milkman, who delivers milk at 5 a.m., owning a bicycle is a necessity but what about a bicycle, for a Sunday ride with friends, costing ₹1.25 lakh for a college student?
What is of pivotal importance is being responsible for our expenses and owning up to such responsibility.
How a menu card works
“After entering the restaurant, the family sat at a table near the window and the waiter brought in various food items. The family consumed some of the food items, wasted a lot and paid the full amount for it.” Does this make sense? Under normal circumstances, we look at the menu card, order food items of our choice and quantity of each based on our requirements. Later, we settle the bill for the items we had ordered. This way, there is either nil or little wastage. Our family budget — or spending list — is our financial menu card.
From the list of various items on the card, we need to decide which ones and how much to spend on each.
Items to order
A financial menu card can be segregated into two main categories and into further two sub-categories. Two main categories are fixed expense and variable expenses.
Fixed expense are those expenses which remain constant e.g. house rent, school fees, insurance premium and EMIs. These are fixed and mandatory. We cannot skip them. The sub-category is fixed voluntary expenses e.g. club and gymnasium membership, subscription to TV channels, magazines, etc. Here we do have an option to reduce or skip them if we wish to.
Variable mandatory expenses are grocery, transport, healthcare, clothing, utilities etc. They keep changing by a small variation month-on-month. Variable voluntary expenses are eating out, entertainment etc.
It is completely up to the individual or family to decide how much to spend on each category. What needs to be kept in mind is there is an inverse relationship between our current expenses and future wealth creation.
Saving and splurging both give rise to similar emotions — only the order in which they emerge changes. Splurging now will give us excitement now but there will be anxiety later about the amount of wealth created. On the other hand, saving now and living frugally may give frustration now but happiness will emerge later as we will have a larger corpus in our winter years.
Don’t predict, but prepare
Avoid getting into predicting the future of Sensex or for that matter anything else. This is a futile exercise as there is nothing in our control. What is in our control is My Sensex. Spend time preparing My Sensex, my financial menu card or, as my client calls it, My Spending List.
(The writer is a financial planner and the author of Yogic Wealth)
