Largely people like short term pleasure over long term benefit. Let me explain.

A sweet stays for 30 seconds on the tongue (thanks to the tongue and the saliva, you know the taste) but for 30 years on the hips. We still choose the sweet.

When biscuits are passed around, butter cookies and kaju cookies are chosen first, then Marie biscuits are taken…

there are a zillion examples.

Recently one kid who was about to ‘invest’ (to fend off the HR guys to whom he had given an undertaking!) used the ‘investment money’ to make a down payment for a new bike costing Rs. 140,000.

why does all this happen? Simple…

Delayed gratification is so boring!

Particularly when it comes to finances, constantly pinching pennies and saving all your extra cash is pretty darn boring when you get right down to it. Which is why so few people do it well. There are too many fun things to spend money on.Yet, unrestrained spending (especially the kind that lands us in debt) is the antithesis to wealth creation. Too many leaks in our cash pool leaves less to save and can ultimately put the lid on plans for our kids’ college, vacations, or dreams of leisure. A common solution — strict budgeting — scares away many people who see it as an existence devoid of any fun whatsoever.Unfortunately, many of us go overboard on the fun stuff during at least one portion of our lives and land in a financial pickle. But you don’t necessarily have to turn to dry roti and onion, bicycle transportation, and radio to meet reasonable retirement goals — a little creativity can give a good balance of gratification now as well as a comfortable retirement later. You need to remember that investments made today are going to help you in consumption later on.

The case of the monthlies

What gets many people in trouble these days is in catching what is called a case of the monthlies. This is the compulsion to sign up for services that are billed monthly at what seems to be a very low rate for all the fun the subscriber gets from the deal.Twenty years ago, your average Indian subscribed to only a handful of basic services — the bare necessities of water, power, and a luxury named telephone. Today he is hooked on extended services such as cellular phones and broadband Internet access, as well as a handful of the many entertainment subscription options — cable TV, digital radio, video on demand, online music stores, etc. — that are all vying for your money. All the consumption is now converted into monthlies – it helps! The car salesman never tells you the price of the car. What he compares is only the EMI (another monthly!). Thus the car looks cheap. Housing is also a monthly! And while most people hate paying for utilities, paid entertainment at least buys some fun in life. Why even that nice plasma television is only 2k a month! So what if it is 48 months? You also have to be careful about credit cards which allow you to pay on an EMI basis – pay 3k per month immaterial of how much you spend!

The monthlies can cost you dearly.

One way to see just how much of your cash is sapped is to annualize what you pay for services. Viewing it this way, your fairly reasonable Rs.250 a month balloons to a Rs.3000-plus annual commitment over the life of the contract. Add to this some tax, some add-ons etc. and you may be talking of a small package! It stands to reason that if monthlies are costly for consumers, then they are a boon for businesses offering them. Smart companies know that it’s easier for consumers to swallow a small monthly cost than a large one-time payment. Apple has also scored big by offering consumers alternative ways to pay for audio content. The existence of small payment possibility is perhaps the single main reason why we have seen such a spurt in the mobile phone business. The recurring nature of monthly payments to businesses also makes them attractive to investors due to the stable cash flows.

Simplify and justify For most consumers, the problem is not necessarily in signing up for a lot of monthly services.

It’s more a matter of blowing money on services they hardly use in the first place. To make sure you’re getting the most fun now while saving some gratification for retirement, consider a few fresh approaches to the monthlies:

* Avoid contracted services unless you’re certain that you will realize the entire value of the contract. Paying that annual membership contract for years will have you kicking yourself if you stop going after three trips. Know your options, too.

* Make the most of trial periods for new services. Test out new entertainment or utility services such as cell phones and cable/satellite television immediately to make sure they’re worth the money before you get locked into payments. If you’re not thrilled, cancel during the trial period.

* Periodically question why you are paying for services. You may realize, for instance, that you no longer need to pay for access to download music if you’ve already gathered a large enough collection of songs on your MP3 player.

* Consolidate redundant services. Many entertainment options now overlap, so you may be paying several different companies when you could actually pay less to fewer companies for the same services. Another important step is to scrutinize your monthly entertainment and utility expenses. For some, unlimited movie rentals with a library might be a wasteful indulgence. In other cases, however, a subscription may actually save you money — particularly if you rent two movies a weekend at Rs.140 a pop from the local library – making it a smarter choice in the long run.

Bringing it home

Everybody has different thresholds for justifying their spending — just make sure you’re honest with yourself and that you’ve considered all the options. If you do, you’ll likely find opportunities to cancel a few services and free up some cash. Also, you may find it easier to resist the temptation to sign up for a gaggle of new monthlies.

A good practice is to automatically increase savings into your savings or retirement funds as you lop off any monthly expenses — so you don’t even realize you’ve freed up extra cash.

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  1. Subra,
    The readers of your post are the rare few and in minority,who actually wants to create wealth. Long term , when we speak, is good to hear,but difficult to follow. And folks like complex financial products as compared to simple ones ( well u lose bragging rights, if you are a simpleton..). I agree completely to the thought process expoused in this post and all your other posts and soon this minority will swell in nos.

  2. Great learning. I am sharing this article with people just starting their job, hopefully they will learn the whole point which can change their life.

  3. one point i want to add: for people with travelling jobs or spouses in travelling jobs: ensure your reimbursement claims are made on time and diligently.i know lots of friends who are tired and take months before their claims are processes and in the meantime,they are actually paying their company free money/credit.not ot mention the bills get lost and you end up losing money.this is true for management types who are loathe to keep bills for rs 500 etc

  4. Thanks Subra for these valuable insights! I’ve been a regular to your blog and has gained a lot of Finacial knowledge.

  5. I fully agree that if we try we honestly we can spare some cash without much bother. I was out of my budget due to rising price in Nov. and Dec. On looking closely at discretionary expenses, I found the commuting bill to office (10km) at Rs. 3000. Add to it the maint. cost of car & things are worse. I decided to try public transport. Now I travel by bus and the daily ticket is 20 Rs. A saving of Rs. 2400 a month. Of course It’s easy to implement in Gr. Noida than in Mumbai but it’s worth. Now the benefits:-

    – Saving of 2400 per month.
    – Morning and evening walk of 15 minutes
    – Age of Car enhanced.
    – Interestingly I never reached office late since I stopped using car, earlier it used to be 5 to six times a month.
    – I wake up 30 minutes early.
    – Contribution to Pollution released.
    – Sense of satisfaction.

  6. Sir Ji, do you have any readership figures for your blog? I really want to know how many are reading ‘SubraMoney’. Great work Sir. Keep up the good work.

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