What to do with the extra money FM gave us - Save or Spend?

After a long time, our Finance Minister gave relief to all of us in the salaried class. By increasing the tax slabs and adding another 20k tax free investment in Infra Bonds, he gave 51000 extra money in hand (if your taxable income is 8 lakhs or more) and 6000 reduction in tax payable if you chose to invest 20k in infra bonds.

 

Splurge or Save will be the big question. I hope that I am correct in saying that my reader group has more or less reached a certain maturity level in our careers and that we are all cash positive and we expect to be on a growth path for few more years. My further discussion would be based on this assumption.

 

What to do with the extra income - splurge or save? Before you choose to decide on the correct answer, let me take the fizz out of the question by adding that there is no single correct answer. The plausible answer is "it depends."

 

One has to live in the current moment otherwise there is no life, you would either have memories or dreams. Memories and dreams are not totally unnecessary - you get cheered up when you recall a happy moment and will get motivated when you start thinking about a dream, in fact they are part of present but alas memories and dreams cannot feed us nor can they make things happen. You have to make things happen in present so that you can realise your dreams in future look back at these as past memories.

 

For me, Money is a kind of measurement. Measurement of various things - value, utility, energy, requirement, needs etc. Of these, utility is the most subjective one that impacts our view about money and all other earthly things. What is this utility, then? Utility is supposed to be the happiness (another subjective word) derived by the individual by doing a certain task, physical, mental or emotional and disutility is the unhappiness or discomfort.

 

Utility, as can be observed easily by any one of you independently, can be derived from various things - eating, sleeping, playing, watching a movie, possessing a rare thing, interacting with someone, caring or being cared by someone, reading a book or watching a nice movie, spending time with someone you like, mostly categorizable as satiating different types of hungers and certain abstract things such as meditation, prayer etc. Sometimes utility and disutility go hand in hand and in such situations we think about the net effect and decide whether to do it or not.

 

End of the day, all of us want our day to be a day in which we have gained some utility and thereby experience life positively. If, on a given day, all you experience is disutility, you would wish that you were better dead than alive. What I am arriving at is that on a daily basis we keep searching for utility like a bee searches for honey - searching has some disutility but finding what we want has greater utility, so we are ready to experience some disutility to gain utility later.

 

 

One of the first steps to make life better - is to identify the things that give us more and more utility. But as money is designed to represent the aspects that have common utility to all human beings, it generally can buy things that all human beings can recognize - you can have tasty food, travel to a exotic destination, but some entertainment, indulge in a pleasure hobby etc etc. And the utility money can buy is the easier one though it may not last long and since the disutility of doing the work to gain money and utility that is gained by spending such money are disconnected we never know if it was worth it (disutility of earning money vs the utility gained by spending money)

 

While we need the utility that can be bought by money to live, there are many other things not related to money but can be done if you are alive. My take is that we should keep using money to buy those things that we need to live - food, house, clothing etc but learn to see the real utility. Wearing a 2000 rs branded shirt may make you feel better and superior to a roadside pedestrian but if you look at the real utility, the value of things that 2000 rs can buy will look like a mountain compared to the branded shirt. You can spend 500 rs at a multiplex but if you make effort and plan and meet few friends for a sport, it will give you far more happiness. So learn to understand yourself and your utility for various things. One of the most important activities I have done as a human being is having good friends. Human being is supposed to be the most evolved being on Earth at least in my conscious and spending time with a mentally evolved human is the best thing I can do after my basic hungers are fulfilled. While fulfilling hunger is necessary you have understand the hunger first, why do you desire something so much is a difficult question to answer but you can keep trying.

 

When you save, you are postponing consumption of things that money can buy and it means fulfillment of someone elses utility. If you have got enough utility for the day, then your postponement of that little utility not cause disutility. Thus right amount of saving is a zero utility/disutility activity and knowing this "right amount" is critical.

 

To conclude, it is a good time to do a review because you have that little extra money in your hand (about 10%) without any additional effort. You are not sacrificing anything and therefore you need not feel bad and decisions that are taken when one is stable would be good decisions. Take a good decision

 

I hope I gave you some good utility in writing this mail and sharing my thoughts with such good friends is a great utility for me. If you want to discuss anything personally, feel free to get in touch with me.