Love To Spend On Things
That Make You Happy? Here's Why You Probably Should
I have a friend who is extremely conscious of what he eats,
exercises regularly etc. But on a weekend, he's out guzzling beer with friends.
He says, he plans for that indulgence and the opportunity to
relax and have fun with friends by eating right the rest of the week and
exercising extra on Saturday. This got me thinking.
We write a lot of articles about how to plan your spending - but
most of these are about necessary spending. By ignoring what gives us pleasure
and forcing ourselves to 'sacrifice' we may not be helping our long term plan.
Why you need a cheat day when planning your finances
Just like there is a cheat day in every effective diet and
workout plan, you need to cater for indulgences in your financial planning.
All of us have only so much impulse control and we can control
spends just to a point where it doesn’t cause pain.
Not catering for these spends is why a lot of financial problems
arise and why people end up with avoidable debt. By not giving yourself a break
every now and then you may end up doing binge spends.
Prioritize your spends, rather than just curtailing them
The people who end up doing a good job with their finances, tend
to use priorities a lot in their planning. They prioritize which investments
deserve most of their money and also which spends they should go ahead with and
which they shouldn’t.
Deciding the things you really love doing and are non-negotiable
for your personal happiness (within reason) will help you prioritize your
spending to get the most out of it. For example if you absolutely love watching
movies, then you should add it to your list of spends and plan for it.
While we would love to do everything we love, a limited salary
also means making compromises. Prioritize amongst the things you love doing and
allocate a portion of your earnings to that.
Planning for happiness with an indulgence fund
A good way to make sure that you don’t end up feeling guilty because
you spent on just feeling good is to simply plan for it. Just as we have
emergency funds for unforeseen circumstances, it makes sense to have a fund to
cater for your indulgences.
This fund can vary in size depending on your income. Here’s a
simple way you can calculate and create your indulgence fund.
I discussed this with a few friends and broadly we thought this
break up would work for us
Split the take home salary into 4 parts
- 15% for my long term savings through SIP
- 25% for rent
- 45-50% for living expenses
- 10-15% for indulgence
You can find your own balance depending on what your essentials
and indulgences are. You should also figure out if you can actually afford to
indulge. I didn't realize this until later, so don't make my mistakes. Do tell us in comments what you figure
out.
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