When somebody asks you a question like this, what can you really say?
I have seen Suzie Orman say “you have $ 59,000 in a Roth IRA, you have………blah blah….” so go ahead and you will be able to afford it!
In Indian conditions it is far more difficult to say this. Remember we have no Critical Care Insurance, nor do we have any kind of social security available. Also, I, would like to take a slightly different route.
Let us say the person asking this question is 29 years of age and has a Gross salary of Rs. 700,000 and a take home salary of Rs. 45,000 after all deductions. He is a good planner and has decided to do some Investments etc. and this is how his money is spent:
Rs. 19,000 towards household expenses,
Rs. 8700 SIP towards housing emi and Rs. 5500 towards car emi,
Rs. 6000 towards retirement goals, and Rs. 4000 towards eating out, and other entertainment.
This means he does not have a cash flow of Rs. 12000 to pay for the shoe. It also means that he KNOWS what he is spending on and what is he investing for. All this is good. In fact very good.
It also brings us to the question – can he afford it?.
Ha! he has decided that he will invest Rs. X for retirement, and his ENTERTAINMENT expense will NOT EXCEED Rs. X.
So his annual entertainment budget is Rs. 65,000 (retirement figure is Rs. 72,000) – and he will keep about Rs. 7000 for some emergency that might come up. His budget of Rs. 65,000 includes money for eating out, movies, hobbies, etc.
Now for his hobbies. He is an avid runner and takes part in 5 events in a year. Each of these events cost him about Rs. 2000. He eats out and spends about Rs. 3000 per month on that. That leaves him with about Rs. 19,000 for other entertainment. He attends weddings of friends, etc. and that takes away …some.
So on the whole Rs. 12k for a shoe looks fine – on a CTC of Rs. 700,000 – it really does not look too big. However, when he looks at it as 9k/ 65k it does look big and if he takes off his eating out, etc. it looks like 12k / 29k!! Now it is really tight is it not?
So ask yourself: Out of the Entertainment box, are you willing to spend Rs. 2000 on a running seminar, Rs. 1500 on the registration fees, on the Rs. 8000 air fare to go to a running venue, Rs. 4000 to support a runner who wants to run at a foreign location, …………….
Can you afford an Asics, Reebook, Adidas, Nike, Puma,…..well, well..
the answer is obvious, is it not?
You need to decide!!
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