The Great Singapore Sale has descended upon us once again. Many items out there now carries a lower price tag compared to before, perhaps, including the pair of shades you’ve been eyeing, or the handbag that your sister bought which you would like to get as well. Before you go out to spend your hard earned money on any of these, let’s get familiar with the concept of relativity first.
So often, we hear of someone coming back from a shopping spree, proclaiming she got a good bargain thats “So cheap!”, of say a $500 handbag which was marked down from $800. Is it really cheap? The true intrinsic definition of “cheap” should be viewed relative to earning power, not viewed in terms of absolute numbers. If the spender’s take home pay is only $2,000 a month, then a $500 handbag accounts for a whopping 25% of her income – definitely not what Aunty Scroogey would call “cheap”.
How much then should one spend on things of such frivolous nature? Let The Aunty introduce you to George S. Clason, who wrote the book The Richest Man in Babylon. In the book, Georgie talks about dividing our income into portions eg. 10%, 20% and 70%. That is, setting aside 10% of what we earn as savings, 20% to repay any outstanding debts (if you have no debts, the $$$ can be used for buying things you like….. but remember, only 20%) and live off the remaining 70% as daily expenses.
Items such as dining at a restaurant, buying a new pair of shoes or a present for your bestie count against that 20% and NOT against the 70% (simply because these are things that you can do without). Items that count against that 70% are mortgage payments, electricity bills, transport payments, toilet paper, shampoo, etc.
So back to the question of how much to spend on frivolous things? The answer is: so long as your spending budget has enough limits. So in our example above, it’s 20%. But don’t forget that, that 20% has to include the new $500 bag you wanted to buy AS WELL AS other frivolous items you will be spending on for the whole month. And what if there is not enough limits? Well…. that’s pretty much a no brainer – you pass. Using credit card as a means of financing will only get yourself deeper and deeper into The Dark Side.
Your ratios could be slightly varied eg, 15-15-70, or 20-20-60. Aunty Scroogey herself is living on 10% frivolous spending money, 20% savings/investments and 70% living expenses. 10% may sound little for spending but as mentioned in the last post, The Aunty needs to be scrooge, she has 3 kids to raise. Other than Georgie’s book, read also The Millionaire Next Door, by Thomas J.Stanley and William D.Danko for more money management tips.