Last Updated on May 11, 2024 at 6:54 pm
When I tell people that I managed to invest close to three times of what I spend each month for the last ten years and this is key to becoming financial independence, there is a similar-sounding comment or question: If I invest so much, when will I spend money on the things that I love? When will I enjoy life? The assumption being that I deprived myself of the pleasures of life on the way to financial independence. Let us find out the answer to “Can I get rich only by spending less and depriving myself of life’s pleasures?” and the answer is not a simple yes or no.
If you have always wanted to buy something or do something like a bike or a DSLR, or a holiday, go ahead and buy or do it. Do not deprive yourself. The problem starts when people start purchasing new cameras/lenses every year, take holidays every six months and so on. Then there is a spending problem.
Even otherwise, there is a simple way to find out if there is a spending problem or not. List down all of your mandatory expenses: food, clothing, transport, phone bill, cable bill, etc. Call this X. Use a retirement calculator such as this app: freefincal retirement calculator (Google play link) and find out the investment amount necessary for sustaining your current lifestyle in future. You can get some help on inputs from here:
Or, if you do not trust retirement calculators, DIY one yourself with these instructions:
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Or you can trust me and safely assume that you need to invest at least 75% to 100% of X each month to sustain your current lifestyle. So, are you spending too much from your income? Yes, if you cannot invest that much from your current income. No, if you can comfortably manage to invest.
The logic is trivial. If money leaving you today will destroy your lifestyle and peace tomorrow, then you will have to stop that from happening or at the very least start with small changes.
So do not worry about getting rich in future. That is a big second step. “Can I get rich only by spending less?” is not the right question. Start with, “can I maintain my lifestyle in future if I keep spending like this?” If you can’t do this, there is zero chance of your getting rich!
If you can invest enough to maintain your lifestyle today then the only way you can get rich – defined as more than enough money to meet your future expected and unexpected needs – is by ensuring that you do not increase your expenses as fast or faster than the rate at which your income grows. If you can do this and invest the surplus cash right, then you have a reasonably good chance of getting rich with some luck.
Finally, let us get to my case. I can assure you that I did not deprive myself of anything. I believe frugality is more an inborn trait, though it can be acquired by those who value logic. In my case, I was just born with it. If my heart tells me, “now, that would be nice to buy”, my mind would immediately start doing a cost-benefit analysis. If there is enough benefit, I would always buy.
A simple example is a low-carb lifestyle. I drink cream for breakfast often and eat almonds as an afternoon snack every day. These things are far from cheap. Our monthly vegetable budget is higher than average because that is all I eat for lunch and dinner. However, the benefits exceed the monetary value: losing weight and more importantly staying that way, proper cholesterol levels, healthy blood sugar, ability to handle Myasthenia Gravis (my autoimmune condition) better and so on. So it is a no-brainer in my case.
On the other hand, we still have a CRT-TV. Simply because we do not use TV anymore, all four members of our family – self, wife, son, mom – have their own pcs. So there is no need to have one just because it can give you a better “experience”. We do not change tech unless it is broken down beyond reasonable repair.
I travel by the most expensive way other than first-class flights (so far), just that I do not travel much. There is nothing deprived in my life in any way. Just that I did not start making expensive spend the moment my income became a bit higher. I invested the excess and only when I was comfortable that the cash flow situation is good did I choose to spend on something “big”. That is an instinct in my case.
Please do this above exercise if you have not already! Share this with a friend or colleague who may need to.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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