Use common sense.
Yes, that’s the only advice you need to be rich.
Use your common sense before doing something. Whether it’s buying a house, making an investment, or spending on a foreign vacation.
A large portion of your wealth comes from living within your means. That’s how our parents, their parents, and all our previous generations made it in life.
The decision-making process for buying something
Answer each of the questions below in the given order.
If you answer “Yes”, move onto the next question. If any point the honest answer is “No”, then defer the purchase decision.
1) Can I afford it?
2) Do I really need it?
3) Can I buy it later?
4) Is there a cheaper alternative?
When life cannot be decided based on a “process”
There’s a reason why many theories remain “theories”. It’s hard to practice in real life. Sometimes, I cannot afford to buy something, but I really need it.
For e.g., one of your loved ones fall sick and you need money for an operation.
Apply common sense again. What’s the best option for me? Personal loan, asking friends and family, or something else?
Decisions are hard. As long as you use common sense and be truthful to yourself, you can make the right financial decisions.
Applying common sense to real life
A penny saved is a penny earned.
Applying common sense in real-life is easy. Sticking to them is the hardest part.
Here are some things that went well:
1) Every day, I see tons of amazing electronic deals. But they don’t pass the decision making process. Money saved.
2) For our first wedding anniversary, I and my wife decided not to spend on a lavish vacation. Instead, we took a week off to spend time with our parents and grandparents.
3) I don’t own a car yet. Since I live in Bangalore, Uber, Ola, and ZoomCar takes care of our transportation needs. However, they are not reliable all the time. Until we have a child, we decided not to buy a car. For now, our new scooter serves us well.
4) We plan to stay on rent until we retire. We save the money in an equity mutual fund. When it’s closer to our retirement, we’ll buy a small piece of land and build a cozy house.
5) I am completely debt free. After making expensive mistakes, we recovered.
Here are some things that didn’t go well:
1) While in the US, I am not able to stick with my pre-planned budget. Most of the time my mind justifies some of the spends saying – “You can’t do it back in India!”
2) I bought a neck massager when I saw a 75%-off deal. I haven’t used it after the first day of purchase. That’s a few thousand rupees wasted.
3) We still do not have a holistic view of our investments. While there are tools available, I am not comfortable using them to aggregate all my information. That’s a security risk for me.
4) I am slowly building up my emergency fund again. I drew from my funds to pay off my debt.
The power struggle you can never win
Businesses need to make profits. Their goal is to get every rupee from you. Your goal is to save every rupee you have.
That’s a difficult power struggle.
When a car dealer suggests an upgrade, a real estate broker suggests a bigger house, or your relationship manager suggests a new product, understand why they are doing so.
Sometimes it’s in your best interest. But often, it’s to get more commissions or to meet their sales quotas. That’s OK. Everyone needs to make money.
Remember this though- Other than you or your family, usually no one has your best interest at heart.
Ultimately, it’s your money and your time. Spend both wisely.
What do you think?
What’s a common sense approach that has worked best for you? I’m all ears.
Hi Adarsh,
Very insightful article. The decision making process may need to be corrected.
1) Can I afford it?
2) Do I really need it?
3) Can I buy it later?
4) Is there a cheaper alternative?
If I answer “No” to the third and fourth question, shouldn’t I be actually going ahead with the purchase?
Hi Rajesh,
If the answer to the first 2 is yes, then the decision to purchase is YES.
Questions 3 and 4 only helps to delay the purchase decision or get a better deal. The 3rd question is very important because, oftentimes, we might feel that we “need” something, but by delaying the purchase decision, we might be able to find a better deal or skip the purchase altogether (because really it was a “Want” which we thought was a “need”).
Hope this clarifies.
I loved the article but realistically it may not be that practical. Sometimes you get in vicious circle of wanting and needing more and so spending more. Buying cloths is perfect example. mostly it is not wanted but you end up spending on cloths just because they may be of brands that you want to flaunt. There is definitely a line between living on edge (Need Vs Want) all the time and living life.
Totally agree with your article but giving other side on how easy to loose that focus.
Excellent, this shows how much observed your life – in detail.