In a recent wealth study conducted by Economic times, the researches observed a huge difference in the mindsets of the people as they prioritized their spending and investments. And with the renewed approach to financial goals, financier’s advice on tweaking the spending approach to avoid the risk of overspending and stepping into the debt trap.
The decade that was, between 2009 and 2019, has come to be denoted as the most aspirational. Scores of Indian middle-class people, decided to go against the odds by divulging their investments to invest more discretionary expenses. Financiers state that the percentage of discretionary expenses shot to 50-60% from a meagre 25%.
Looking into the spending patterns, you can sense the change of trends in the air with the number of solo and international vacations; the growing number of asset accumulation including luxury cars and attires. With shifting priorities, financial planners and wealth managers reveal the risks of increasing consumerism and discretional spending. Here’s a brief overlook on what the study’s revelations.
TRACKING THE MINDSET CHANGE
In the early 2009, the top goals of an average Indian family included providing for children’s education, marriage expenses, investing in a house, a car and planning for the afterlife of retirement.
However, fast forward 10 years, the financial goals have changed completely. Almost all of the participants of the study features international vacation as one of the key goals; and saving for retirement and children’s marriage seem to have gone down the list of priorities.
THIS GENERATION SEEMS TO BE ENGULFED IN A MIRAGE OF “LIVE IN THE MOMENT” IDEAS!
Comparing the charts, you can see that children’s education, buying a house and retirement are constants in both the lists.
DISCRETIONARY EXPENDITURE HAS BECOME THE NORM
Backed with abundant disposable income at the hand, people are now opting for a better lifestyle change! This has allowed for the benefit of frequent gadget upgrades, purchase of fitness devices, private cab rides, gated housing complex charges, salon and spa expenses, and pet-related spends.
NEW GOALS, NEWER APPROACHES
With shifting priorities, it is good to get an insight of our spending and tweak our goals in some ways to avoid the risk of overspending. In that regard, the expert’s advice is to categorize the expenses into three different buckets:
Categorize your spending into these and stick to it religiously, says Nisreen Mamaji, founder, Moneyworks Financial Advisors.
The other approach is to keep yourself aware of the challenges that await after retirement, medical expenses featuring prominently on the top of the list. “This helps decide the limit on discretionary spending,” says Rahul Jain, head, Edelweiss Personal Wealth Advisory. Instead of relying on a health insurance policy, you can take prudent measures to manage health expenses otherwise as well.
ALL EYES ON THE FUTURE
The next 10 years might not make much of a difference in the spending patterns as some of the luxury expenses now might become ‘must-haves’ in the future. These include cost of hospitalisation with single occupancy, senior living expenses, inflated water bills due to paucity, high-end security systems, gadgets, regular upskilling, pet-related expenses, installing air purification plants at home and so on.
And thriving in an constantly changing economy, one would have to plan for regular goals like retirement and children’s higher education, and create additional cushion to deal with unexpected situations like job losses.
Expert’s recommendation states that one has to control lifestyle expenses and increase the exposure of investments to other growth assets like equities to beat the inflation. Also, this ensures that your portfolio has enough exposure to international funds for diversification. And since long-term care funds like taking care of senior citizens and yourself after your retirement is non-negotiable, it is advisable to start by making small amends now.
Start by setting aside a small percentage of your monthly income to act as a buffer in these futuristic expenses. The future is going to be uncertain and unstable, so taking meaningful measures now may appear as a sensible thing in the future.