Avoid lifestyle liabilities – the biggest hole in savings

By Rohit Malik

What are lifestyle liabilities?

Lifestyle liabilities in simplest form are different liabilities that accrue due to your chosen lifestyle. No, this post is about being frugal with your choices. Not at all.

Rather this post is about unknown factors which sometimes add liabilities in your life, which you don’t need. Not even for your chosen lifestyle.

If you follow any personal finance website, then you the most common advice is not to buy an expensive mobile phone when the similar features are present in cheaper versions. Buying a 60k+ worth of phone for a faster processor or anything similar is something you can look into.

But, how come buying a phone is a lifestyle liability?

Well, it is not, if your salary is 5-6 times the worth of the phone. Now think again about your current income and the phone you are planning to buy.

Why are these expenses lifestyle liabilities?

Carrying forward the previous point. Most of the current users, want to change their phone in about 12 months. Which means the phone that you are excited about today is something you would like to sell before the year is over.

And you don’t get a good price for your old phone. Maybe slightly better than other phones, but still it is not good enough sale. Thus the cost between the price you paid for the new phone and the price for which you sold it for is the cost of ownership of that phone.

Which means an iPhone which you bought for 63k and then sold for ‘even’ 30k a year later, cost you 33k within a year. That’s expensive.

And what benefit did this ownership gave you at this cost?

Similar to this is the decision to buy a laptop which you are mainly going to surf the web or watch movies. Of course, don’t go for the lowest priced models too. Lowest models generally work well only for a couple of months and then they are not able to handle the load.

It is buying top of the line models which is categorised as lifestyle liability. You see the top of the line models come with one or two extra features. Something that sets them apart from other models.

In reality, how many times the usage depends on that extra feature?? Believe me, not many times. If something was that important, it will soon come as a standard feature in all the cheaper priced models too.

How do they affect the savings?

Savings are what is left after spending.

Unlike investing, which takes a proactive approach, savings are highly based on your monthly expenditures. Which means it depends on the lifestyle which you have.

For example, eating out 2-3 times a week slowly adds up to quite a number when seen on monthly basis. Again, that number should be a sensible part of your monthly income.

Earning ₹50,000 and then spending ₹20,000 on rent, ₹12-15k on eating out and other entertainments quickly add up to nearly your monthly income.

Or buying a phone on EMI looks like a small amount today, but then it opens the door for buying other consumables on EMI too.

A simple thumb rule is that, unless you are using any product to build assets like educating yourself to build skills or buying a good laptop for delivering projects or something similar, you should not buy consumables on credit.

Going on vacation and then paying EMI for that in coming months is one such very expensive habit. The memories of that vacation are not enough to pay for extra EMI after the pleasure part is over.

How to avoid such expenses without being cheap?

It will take a clear mind and courage.

Clear mind to know what you want to do with your money over time. A good idea is to figure out how much you can set aside to invest per month? Once you have figured out an amount of money you want to invest per month, put it on autopilot.

Then you set aside the amount for expenses which are necessary like bills & rent.

Then set aside something called ‘fun money’. 

This is the amount which you can spend on whatever you like. Or you can keep it aside for something you like to spend on in a couple of months.

Rest is what you should put in savings.

This is what will require courage. To find the right balance between fun money and savings. This is something is best done when it comes from within you.

Anyone else telling you the right balance sometimes makes you feel forced into it. And this is not a good feeling for long-term wealth building.

Even if sometimes, after spending the fun money, you get the feeling that you spend more than you should have. Don’t regret. Just adjust next time. Within a couple of such adjustments, you will reach a figure which you will be able to follow long term.

On top of that, this will give you a better perspective about your investment profile as what you save will slowly get into what you invest too.

Final thoughts

Lifestyle liabilities are not inherently bad. Once in a while, it is good to indulge yourself.

The problem comes when it develops into a social pressure you ‘have’ to keep up. And just like any other pressure, it only adds up.

The best solution is to neither be stingy nor be extravagant. Plan you investments, automate them and then keep spending a part of your income on regular basis. This way you are both living your life right now, as well as building a more secure, financially free future.

Planned investments take care of building wealth for you & spending in budget takes care of current pleasures of life.

As Warren Buffet said:

“If you buy things you do not need, soon you will have to sell things you need.”

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