The right way of spending more to lead a rich life

Now, truth be told, it did make me feel guilty a lot of times. Was I spending unnecessarily and being reckless with my money? That discomfort was always there. In most other areas of my life, like a typical middle class Indian, I was a value-conscious spender. I had a normal mid-range car, bought clothes mostly during discount sales, had a half-decent mobile phone, went to a normal salon and stayed in a rented mid-range apartment. Yet, why was I okay spending extravagantly on fitness and not on other things?

The more & less approach to spending well

Finally, I had my epiphany after listening to US personal finance blogger Ramit Sethi. He introduces a unique view on spending. Instead of taking a simplistic ‘don’t spend money on expensive things’ view, he advocates a nuanced approach to spending. Spending that is INTENTIONAL!

Here is my version of this idea. Leaving aside your fixed monthly expenses (read as house rent, utilities, grocery, petrol, etc) over which you don’t have much control, identify the key areas that roughly account for 80% of your remaining discretionary spends, such as eating out, movies, clothes, grooming, fitness, self improvement, travel, charity, gadgets, etc.

Now two things can happen. We spend like crazy across all these areas, leaving us with a huge credit card bill and no savings or we try to save up on everything and end up not spending on anything we love.Both of these are extremes, and the trick is to find the right balance. This is where you need to embrace the idea of ‘prioritization’ and the ‘more and less’ approach.

When it comes to maximizing your joy and fulfilment, not all areas where you spend are created equal. Each of us are unique and have a few different areas that matter more to us. You may love to spend on travel and think that spending on fitness is a waste of money. I may think the opposite. I love spending on fitness and don’t get excited about travel.

So, the key here is to stop judging and instead understand our priorities versus what is being thrust upon us by friends, family and the society. If you enjoy music, spending more on music-related experiences and items will bring you more joy. The more we spend on the areas that really matter to us, our life becomes richer, meaningful and joyful.

So, pick one or two areas that give you maximum joy and satisfaction and take the ‘MORE’ approach. Act rich and spend far more than usual in these areas alone. Don’t worry about what others think or whether they will approve of such actions. To compensate for this, in all other areas that you don’t care about, embrace the Indian middle class approach—being value conscious and frugal. Spend ‘LESS’ on these areas. As your income goes up, and spending potential improves over time, extend the ‘more’ approach to other areas gradually over time. This exercise will also help you become aware of the areas where you spend a lot of money but do not make a meaningful difference to your happiness.

Ramit Sethi sums this up pretty well: Spend extravagantly on areas that are meaningful to you and mercilessly cut spending on areas that you don’t really care for! Here is the key. Once you have a high savings rate, how you spend the rest of your money doesn’t really have any major negative impact on your future.

Remember, everyone will have a different definition of a rich life. So, don’t judge people by their choices. Go spend intentionally and lead a rich life!

Arun Kumar is VP and head of research, FundsIndia

Updated: 10 Sep 2023, 10:12 PM IST