POSTED BY June 29, 2009 COMMENTS (61)ON
Answer this question Honestly. Don’t rush, think about it and then answer this very important question. If you get salary cut of 10% and you have to live with 90% of your salary; how will it affect you? In this article we will see some important insights on spending habit and psychological issues.
Most of the people do not save anything at the end of the month and the biggest reason is that they are not left with anything (as they say). “Supply creates its own demand”.
This applies to Personal spending also. When we have money in our hand we will come up with million reasons as to why we have expenses and why we can’t do with any money less than that.
If you get a salary cut by 10%, will you be able to
– Pay your Rent
– Meet all the household expenses
– Pay your children fees
– Spend on all the important things like Entertainment, eating out, occasional
splurging etc etc….
I can bet that most of you will have answer in YES!!
If people control and prioritize their spending then it’s totally possible to live in 90% of salary. Just close your eyes and imagine a situation that you are now earning just 90% of your regular salary. Small savings can make up large chunk of investments.
If you try to answer the above questions then the answer would be a YES for almost all of you. There can be some exceptions but i am talking about majority.
For some people they may require cutting down on totally useless stuff and reducing expenses on things which can/should be avoided. Some of the examples are
Please understand that saving money does not mean depriving yourself. The only thing I’m saying is that we Indians especially in Metro cities have slowly started going the American Way, i.e. Spending more than what we earn. From last couple of years, we are using to much of credit cards in the way we shouldn’t be!
We are a nation which saves but do not invest properly and now we Indians have started spending like never before. Spending is good, spending on useless stuff or stuff we can do without can be like cancer. It will not hurt you immediately, but kill you some day.
I believe (and I can prove) that saving 10% of your salary is only what you need to do to achieve all your goals in Future, provided you Start Early and Have realistic goals.
A person who is 25 yrs old and earning 40,000 per month if saves 10% will his retirement(60 yrs) would be having anywhere from 2.3 crores to 6 crores if he earns anywhere from 12%-16% in long term which is totally acceptable. See how to calculate this in this video.
Next time you get your salary, take 10% out of it and deposit it in some other bank account. Just try to see if you can do with 90% of your salary. I bet you can do it. Saving 10% of your salary can have drastic effect on your investments. You can create nice wealth using Equity in long term.
One of the readers Ramjee comment is worth notice. Please see his comment.
That was on the bulls eye. A little bit of decrease will not effect lifestyle much, but has a lasting impact on your wealth. I have an automated schedule put to transfer 15% of my salary (a fixed amount every month, which is revised if sal.changes) to another account. At end of 6 months it feels good to see the lump sum which can go in for further investments. “
What he did is worth appreciation. I hope people learn from him.
We don’t save because we think we can’t save. Whereas if you try its totally possible. Just to try do this next month. When you get your salary, take 10% out of it and deposit it in some other account and try to live with 90% of your salary, see what all your are missing and if you are facing some difficulty or not.
To see more tips on savings and spending, you can refer to Ramit Sethi’s blog.