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) I am currently in the US for two months as part of a business trip. Every day, I see tons of amazing electronic deals. But they don’t pass the decision making process. Money saved.
2) Our first wedding anniversary is coming up. I and my wife decided not to spend on a lavish vacation. Instead, we are taking 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.
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) While I currently have an emergency fund, I’ll be pulling out most of the money to pay off my debt soon. I’ll need to start building my emergency fund again.
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.