Saturday 19 April 2014

The Philosophy of Spending Money

This is a departure from the usual blog posts on how to save money. It discusses where to spend money. By knowing where to spend money, you will also know where not to spend money or to spend less money, leaving you with more money saved.

Instead of following a needs-based approach in spending money as discussed in the last blog post, another way of spending money is to follow a values-based approach. A values-based approach means knowing what is important to you and spend money in that area. This is best illustrated using an example. Being a boring and unromantic person, I think roses can be a waste of money. They are full of thorns and do not last for more than a couple of days. However, when you see the sparkle in the eyes of the girl whom you bought the roses for, you will think that the roses are worth every cent of the exorbitant price that the florist charged you for it. You will remember the MasterCard advertisements that run roughly like this: "Price of a bouquet of roses: $50. Price of your girlfriend's smile: Priceless". When people and things are important to you, it is worth spending money on them.

Of course, it is easy to get carried away and spend too much money on them. We have heard stories about young couples having lavish weddings and ending up in debts. The good news about values-based spending is that the outcome is independent of how much money you spend. You do not need to have a lavish wedding in order to live happily ever after. Our parents have simpler weddings and can be just as happy. In investment-speak, this is the land of multi-baggers, where a small cash outlay can yield returns many times over.

How do I reconcile the spend-bare-minimum needs-based approach with the spend-at-will values-based approach? In reality, there is not much contradiction. People and things important to you can have needs that justify the spending. And values provide a guiding principle for where to spend the money. In more concrete terms, when spending on my personal needs, I follow a needs-based approach. When spending on family and friends, I try to follow a values-based approach. Admittedly, there is a dominant mode, which for me is the needs-based approach. Occasionally, I do have to remind myself to loosen up a little.

There is a purpose that we work so hard for much of our lives. The purpose is not for hoarding money. It is for the people and things that are important to us. Spend wisely, and you will have a fulfilling life.

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