Worried about finding money for your goals? Here is a simple way out

Published: June 29, 2018 at 10:56 am

Last Updated on

In April 2018, when SEBI registered fee-only financial planner Brijesh Vappala and member of fee-only India (FOI) was added to my list of fee-only financial planners, he had written a guest post highlighting a common problem among young earners: A high income will not make you RICH!! He partitioned money spending into four bins or quadrants and showed that if we are not careful, we may spend a lot of precious time spending money the wrong way.

In the second part, Brijesh also offers a simple solution if you are worried about finding money for future goals. A few simple alterations here and there and you could suddenly find the money you are looking for – as if it grew from thin air.

If you would like to work with Brijesh and get your money management in order, please contact him via his website: bvare.com. Now over to him.

=-=-=-=-=-=-=

In the previous post, we saw that whatever money we spend invariably goes into one of the following 4 Quadrants. In case you have missed out to read the previous article, I suggest you to first go through the same by clicking here so that we are on the same page before we discuss further. A summary is given below.

Expense Quadrant
Quadrant I – “Roti, Kapda aur Makan” expenses. The basic essentials. They are Urgent & Important.Quadrant II – “Onida” Expenses.  Ego/Feel good expenses. They look Urgent but actually not Important.
Quadrant III – “Devdas” Expenses. Your vices. They are neither Urgent nor Important.Quadrant IV – “Your real salary”. Goal based expenses. They are most Important but never look Urgent.

It is obvious that Quadrant 4 is where the real game happens. Unfortunately, a lot of people would have also realized that they have a non-existent Quadrant 4.

Starting block – Quadrant IV = 0

The first step in getting on top of your finance is to figure out your Quadrant 4.

This involves clearly stating how much money you want to have, for what purpose and at what point in time. Your goals depend on a lot of things – your age, profession, dependents, dependents’ age, current and aspirational lifestyle, existing family cash flow, existing family savings, your personality type, individual ambitions, return expected, inflation assumed etc.

It is very important that you

  • Write down the goals in clear rupee terms and
  • Involve your family in this exercise.

This is because these written goal statements are going to be your main weapons to counter the temptations of Quadrant 2 and 3. They act as motivation for the temporary sacrifices which you and your family would need to make in the process.

Forget about being mathematically perfect at this stage. More important is to get started. Google will give you any number of calculators to project your goals based on future returns and inflation. They will also tell you how much money you will need to save monthly to reach those goals.

Now that you know how much money you need to put into Quadrant 4 every month, you need to find out where to get that money.

Unfortunately, money doesn’t grow on trees!!

Money for Quadrant 4 can only come from either of the following:

1) By increasing your income OR

2) By reducing your expenses

While the first option, ie, increasing your income is the ideal method, the majority of the people don’t have this luxury or don’t realise that they have this luxury. Hence, for most people, the practical option is the second one, ie, reduce your expenses. Which brings us to the next question – Reduce expenses from where? Let’s look at each Quadrant.

Quadrant 1

These are basic essentials. Hence theoretically, there is very little scope for reducing expense here. However, the meaning of the term “basic essential” can vary from person to person depending on the standard of living one has got used to.

The biggest trap most people fall into in Quadrant 1 is to raise the standard too high too soon.

Consider this scenario. It’s appraisal time. You get a good performance rating and as a result a good pay raise. Now that you have more disposable income, you proceed to change the place you live, you upgrade your mode of transport, you choose more swanky places to go for lunch. These are actually Quadrant 1 expenses but a bit of Quadrant 2 slowly creep into it without you even realizing it.

It thus becomes the new standard. Once you get used to a standard in Quadrant 1, it causes a lot of heartburn to scale down and is done only as a last resort. Therefore, thinking very hard before you change the standard is better than trying to reduce the same afterwards.

Quadrant 2

Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

In Quadrant 1 we found that though theoretically nothing can be reduced, practically there is a lot of excess present there.

Quadrant 2, or in other words the Ego spends, are quite opposite to this. Though theoretically, Quadrant 2 doesn’t matter at all, a bit of it is required practically. This is because human beings by nature are fuelled by the aspirations of their Quadrant 2. Everybody deserves a good life. Which makes Quadrant 2 not altogether bad.

You have heard about the house called “Antilia” owned by Mukesh Ambani . 27 floors. Valued between $1billion and $2billion, it is the most expensive private residential property in the world. It has Quadrant 2 written all over it. If we consider it purely from a personal finance perspective, this hugely extravagant house by common mans’ standard becomes totally acceptable by Mr Ambani’s net worth. That 2 billion is just 5% of his net worth of $40 billion. If he wished to be known as the owner of the most expensive private residential property in the world by spending just 5% of his money, financially it doesn’t look out of proportion.

Now consider this against your own house. If it’s worth Rs.50 lacs, going by the same proportion of 5%, you should be having a net worth of Rs.10 crores. If it is worth Rs.1 crore, you should be having a net worth of Rs.20 crore.  Do you have that kind of net worth? Which one is more out of proportion here – the $2 billion house or the Rs.50 lac house?

So, for Quadrant 2, it’s not the absolute amounts that matter. Instead, it’s the proportion of your Quadrant 2 spends that is more important. The trick to master Quadrant 2 is to ensure that your Quadrant 2 does not happen at the expense of your Quadrant 4 and fix a proportion to meet this objective – whether it is your gadget spends, eating outspends, impulsive shopping spends or whatever. And stick to it relentlessly.

A note of caution – Fix this proportion consciously for both your regular monthly income as well as windfalls like the annual bonus. For example, you know that you will get your annual bonus on May 31st. Even before the amount gets credited to your account, fix the percentage which you will splurge and fix the percentage which you will take to your Quadrant 4. And once it gets credited, waste no time in moving it into Quadrant 4.

Consider the most important Quadrant 4 as a marathon. You need periodical fluid/energy stops so that you get the energy to complete the marathon. Without the fluid stops, you will not finish the run. On the other hand, if instead of a fluid stop you go for a full course meal in the middle of the marathon, then also you will not finish the race. When your Quadrant 2 serve merely as fluid stops and does not end up as a full meal, you are on your way to finishing the race.

Quadrant 3

Quadrant 2 becomes acceptable if it’s proportion to Quadrant 4 is acceptable.

This rule does not apply to Quadrant 3. Irrespective of the proportion, Quadrant 3 is best eliminated entirely.

This is because Quadrant 2 cannot harm you but Quadrant 3 has the capacity to harm you physically, mentally, morally and financially.

Let’s again take Mukesh Ambani’s help to explain this. You would agree that Mr.Ambani can afford to have the best of liquors every day. Let’s assume that he consumes a full bottle of the costliest whiskey 365 days of the year.  It will barely impact him in absolute rupee terms per bottle. But more seriously it will destroy his physical and mental faculties which helped him to multiply the empire which he inherited.

Therefore, though this may sound preachy, it makes sense to make your Quadrant 3 spending zero. Period.

money grow out of thin air!
Pic credit: reynermedia

Money does grow out of thin air!

Remember – You started with Quadrant 4 = 0 and were wondering where to find the money from.

You now know the rules to create that money:

Quadrant 1 – Delay upgrading the standards

Quadrant 2 – Fix your limits. And stick to it.

Quadrant 3 – Eliminate.

If you diligently do what is stated above, you will find that you have the option to create a lot of money out of thin air. And all of this goes into your Quadrant 4.

Maybe, you will have to tweak some goals here and there. Maybe, you will have a shortfall now. But it is definitely a start. Keep at it and as years go by you will find ways to achieve all your goals.

All the best.

Do share if you found this useful
Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.

Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

Leave a Reply

Your email address will not be published. Required fields are marked *