Auntey Scroogey has a colleague who loooooves branded stuff - Prada shoes, Gucci handbags, Chanel sunglasses, LV wallets, etc. Twice a month, she would turn up for work with a new branded item after her fortnightly shopping harvest. For someone who earned a decent but not decadent salary of $4,000 a month, I asked her if she thinks that she is over-spending. She says she isn’t, because according to her, the branded items she bought are for “investment”.
Investment??? Now, that doesn’t sound quite right. First of all, how could something like an LV wallet be an investment? For it to qualify as a investment, it needs to satisfy at least one of 2 criteria:
- you would be selling it sometime in the future for a higher price eg. a house, a few lots of shares
- that it gives you a regular stream of income over a period of time eg. rental income from a house, coupon payment from a bond (Note: Mini bonds are not bonds, they are a kind of risk transfer instrument called Credit Linked Notes… but that’s another story for another day, which I hope to write about when I have time), or interest income from deposits
Hence, an LV wallet is not likely to be able to qualify as an investment in that sense. They are in actual fact, a consumption and a frivolous item at that. And if you do recall, as per good financial discipline, frivolous items are best kept to a maximum budget of 10-20%.
Do a recap – how much do you spend on frivolous items a month? Are you putting aside enough money as savings? Do you eventually end up digging into your savings to buy something frivolous like a Hermes handbag? How does your financial blueprint over the next few years look like? What does your retirement plans encompass?
Ultimately, the message is that it is ok to buy, but within your budget and without caving in by giving yourself excuses to justify the wants.
So the next time you want to whip out the moolah, go with the head, not the heart.