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. The story is much different today. In addition to the basics, today the average Indian 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 250 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 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.

Keep checking what is your net-worth on a regular basis!

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.

Of course, all of this effort doesn’t do squat for you unless you complete the very last step — direct extra money into your savings if you wish to build a cash balance and invest if you wish to build a corpus. Cutting out recurring monthly expenses only to squander the cash in other ways defeats all your efforts.

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.