Synopsis: This article explains how you can make spending decisions effectively and shows how a financial choice can greatly influence your wealth, savings, and future.
Every day, we make choices. Tea or coffee? Walk or drive? However, there are decisions with a sensational implication, which affect our economic future in some way that we may not anticipate. This is the tale of the decision taken by one of such choices, a crossroads before young workers a lot of them: the temptation of a dream-buy against the view of a certain future.
The Tale of Two Friends
I would like to take the example of Arjun and Nikhil. Back in 2015, both earned disposable incomes of ₹20,000 per month.. Arjun being a car lover decided to purchase one on EMI. Nikhil had long-term vision; he chose to initiate a Systematic Investment Plan (SIP) of the same.
Fast forward to today. Arjun has had a decade of merry-making and the pride of ownership. However, his car, which is a depreciating asset, has lost a large part of its value. Nikhil on the other hand has taken a disciplined approach to investing and this has earned him a good corpus, an ode to the power of compounding.
This is not just a tale of a car and an investment. It is the real life illustration of opportunity cost – the potential increase you are missing out on when you decide to use one alternative. The chance of wealth that Arjun might have gained was his opportunity cost.
Also read: 7 Strong Reasons Why India Remains a Global Investment Hotspot in 2025
The Heart of the Matter: Your Values, Your Choices
It is the simpler way out to say that Nikhil made the better decision. However, the choice of finances is not often that straightforward. They are very intimate, they disclose our values and what makes us happy. In the case of Arjun, the instant pleasure of his dream car was important. In the case of Nikhil the aim was long-term financial freedom. It has no correct, global answer. It is all about balancing between being present and having a future.
Financial Planning: A Guide to Young Professionals
Which is, how do you make decisions that would be in line with your own personal and financial objectives? The following is a rudimentary guide to young professionals:
- Create a Budget and Set Goals: The initial thing to do in a financial plan is to know where your money is spent. Prepare a budget to monitor your profit and loss. This will assist you in determining areas where you can save and invest. When you are clear with your finances, then you can formulate realistic short term and long term goals.
- Build an Emergency Fund: Life is unpredictable. The emergency fund, which is usually three or six months of living expenses, has the ability to cushion unforeseen occurrences such as a medical emergency and termination of employment.
- Tackle High-Interest Debt: The debt with high interest such as credit card balances may be a huge burden to your pocket. Focus on ensuring that your debts are cleared to have more funds to achieve your financial interests.
- Automate Your Investments: You can just auto-invest in a SIP just the way you can with automated EMI of Arjun. This not only instills discipline but removes the emotion out of investing.
- Practice Mindful Spending: Know before you make a big buy, stop and think. Is this purchase in line with your values and long term objectives? Will it really make you happier or is it an impulse purchase? This easy habit will allow you to be more conscious in your expenditure.
The Road Ahead
The way you spend money is your own. You have to make a choice whether to purchase the car or construct the corpus and the best part is making an informed choice that you are comfortable with. With the knowledge of your priorities, clear goals and conscious decisions, you can create a path to a life that is satisfying and stable in terms of finances.
Written by Jayanth R Pai