I think spending can be categorized as
Improving Quality of Life: These expenditures can be of type enhancing the spending above it (Essentials) or the type covering the basics of spending below it (Entertainment). Eating Sonamasuri rice enhances food taste but would you eat basmati rice every day? Having a car is nice but which car? Vacation but how often and to where? You see, there are no questions for essential expenditure. But now the expenditure planning needs answering questions, deciding what you can afford and what you need. Generally expenditure in this segmentcan be avoided but makes life difficult. You need to strike a balance between your networth and what you spend here.
Entertainment: This expenditure also involves both categories above and below it. If you or any of your dependants are fans of music, buying a good music player and speakers can be part of either improving quality of life or entertainment. How much you spend on that will decide which category you want to keep it in. Having a basic phone is improving quality of life. Having a smart phone which can do everything and you don't use those features is entertainment. Having the higher end of a smart phone when your real requirement is talking or texting is showing off. Buying jewellary is entertainment. Buying some thing which you can't afford but must buy as your neighbour or relative has it is showing off.
Ego/Showing Off: In your inner mind you know this category even if you try to rationalize the expense. Going for a vacation taking a loan or worth 3L when your networth is 10L is showing off. This category can be strictly avoided. There are some exceptions on making networth to expenditure comparisons. If you are starting in your career, you may be starting with zero networth but if you are highly qualified your potential networth might be high like say for a doctor. So you may go for a big vacation but even there, spending on a loan should be absolute no no.
All these categories are subjective. I think a tata nano is entertainment where as some body else might think Honda City is improving quality of life (I am sorry no car can be essential but there is nothing wrong is spending to improve quality of life). May be it will help to keep tabs on these categories individually. Like spending not more than 5% of your cash flow in showing off, 10% on entertainment and 25% on essentials and improving quality of life. Unfortunately the essentials cost very less than the second category and so on with showing off costing the most.
- Essential
- Improving Quality of Life
- Entertainment
- Ego/Showing Off
Improving Quality of Life: These expenditures can be of type enhancing the spending above it (Essentials) or the type covering the basics of spending below it (Entertainment). Eating Sonamasuri rice enhances food taste but would you eat basmati rice every day? Having a car is nice but which car? Vacation but how often and to where? You see, there are no questions for essential expenditure. But now the expenditure planning needs answering questions, deciding what you can afford and what you need. Generally expenditure in this segmentcan be avoided but makes life difficult. You need to strike a balance between your networth and what you spend here.
Entertainment: This expenditure also involves both categories above and below it. If you or any of your dependants are fans of music, buying a good music player and speakers can be part of either improving quality of life or entertainment. How much you spend on that will decide which category you want to keep it in. Having a basic phone is improving quality of life. Having a smart phone which can do everything and you don't use those features is entertainment. Having the higher end of a smart phone when your real requirement is talking or texting is showing off. Buying jewellary is entertainment. Buying some thing which you can't afford but must buy as your neighbour or relative has it is showing off.
Ego/Showing Off: In your inner mind you know this category even if you try to rationalize the expense. Going for a vacation taking a loan or worth 3L when your networth is 10L is showing off. This category can be strictly avoided. There are some exceptions on making networth to expenditure comparisons. If you are starting in your career, you may be starting with zero networth but if you are highly qualified your potential networth might be high like say for a doctor. So you may go for a big vacation but even there, spending on a loan should be absolute no no.
All these categories are subjective. I think a tata nano is entertainment where as some body else might think Honda City is improving quality of life (I am sorry no car can be essential but there is nothing wrong is spending to improve quality of life). May be it will help to keep tabs on these categories individually. Like spending not more than 5% of your cash flow in showing off, 10% on entertainment and 25% on essentials and improving quality of life. Unfortunately the essentials cost very less than the second category and so on with showing off costing the most.
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