The affluent professionals belonging to the younger generation or the “working millennials” in Asia share a common interest – spending. Because of their new found financial independence, there is a tendency to splurge on things that offer impermanent contentment. Of course, there is nothing wrong in spending if you have the means. However, if you’re in your productive years, the time is ripe to set a long-term financial goal.
Here are two contrasting scenarios that characterise spending patterns that leave room for investment. Both deliver gains but different in terms of the impact on financial well-being moving into the future. Check out where you are in your current state of financial affairs.
Spend first then invest
There are some who would splurge first before using what’s left of the income for savings or investment. The vision of this type of person is short term. You derive instant satisfaction from purchasing goods or services that do not actually make you wealthier. You feel good but it is short-lived until another item tickles your fancy. It doesn’t add any value.
This pattern is common in individuals who have yet to acquire the discipline to save or invest for the future. The spending appetite overwhelms the investment need. Even if you can afford to purchase what you desire, it doesn’t mean you’re wealthy. You will only feel wealthy if you have tangible assets that equate to prosperity.
Invest first then spend
The second scenario is the reverse. The type of person who prioritises investing is looking beyond the present. You are in effect planting the seeds believing that the real harvest is yet to come. When you invest first and then spend the remaining funds, you’re aspiring for a healthy financial well-being.
Your spending habit is controlled and calculated. You want to make the most of what you’re earning at the present. You are searching for investment opportunities. There is a conscious effort to set aside a greater portion of income for investment purposes. You almost certainly know that the money you invest in sound financial instruments today will be worth ten fold or more in the future.
Instead of fussing over high-tech gadgets, why not focus your attention on learning the rudiments of investing as well as the investment outlets available to help you achieve your long-term financial goals.
Eliminate the obstacles to wealth building
If there’s a single, biggest obstacle to wealth building, it’s debt accumulation. The usual culprit why many young professionals experience financial woes early on is the credit card. The plastic gives you an illusion of being rich because you have the purchasing power. What many do not realize is that when you start paying, you end up being impoverished. Instead of improving your financial situation, you’re digging a sink hole.
Owning a credit card used to be a privilege but today you see the widespread use of the plastic even in the smallest purchases. Credit card issuers loosened the credit parameters that eventually led many people to be debt-ridden.
Credit cards gave rise to “reckless” consumers
The 2012 case study by the Asia-Pacific Management Accounting Journal on Credit Card Debt Management gives an insight on the problems with credit cards. It is a profile study of young professionals in Malaysia which showed a worrying trend of bankruptcy at age 30 and below.
No country in Asia is exempted from the credit card catastrophe. Monetary regulators are scrambling to contain the growing number of “reckless” consumers and alarming delinquency rates. As a result, debt management counselling became imperative.
Debt management and counseling
A first-time credit card owner will always feel a false sense of financial security. Once you fall deep into the credit card trap, it would be very difficult to come out of it unscathed. Your recourse would be to borrow elsewhere to pay off your credit card debts.
When your debt balances or loan payables balloon to epic proportions, you’ll feel bitter, depressed and unproductive. The option left is to seek counselling to fix your financial mess.
Learn your investment options
Why undergo debt counseling when you can avoid being a casualty of debt? The young and affluent professionals are encouraged to cultivate financial intelligence and business acumen.
Personal finance is not about saving money alone. The term encompasses your short-term, medium, and long-term financial goals that include investment in valuable assets. The objective is to turn your hard earned cash into seeds that can be planted for an abundant harvest in the future.
Investment options are plenty
You’ll have a head start if you can prepare early for the future. There are several investment outlets available to the prosperous working class.
Fixed Deposit (FD)
This bank product can work for you at the start. A longer term period will yield higher interest. On the maturity date, roll over the principal and interest. In time, you’ll see the compounding effect on your money
Stocks, Mutual Funds, and Bonds
Investing in stocks, mutual funds, and bonds will bring higher returns although the risks are higher. You’ll need to take time and effort to study and learn the market or seek professional advice to get you going.
If you have enough capital, you can even start your own business or invest in a business venture that will provide a steady stream of income. This is serious stuff that requires hard work, dedication, and determination. You can be your own boss if your business succeeds.
The hard lesson – too little, too late
Finally, those who are approaching or have reached the sunset years are regretting not building enough wealth during their prosperous years. It’s too little, too late.
Your best buddy is time when you are younger. Develop a mindset of prosperity. There will be bigger investment opportunities and assets to accumulate. It may seem intimidating now, but every wealthy self-made person had to begin by earning money, spending less, and putting their money to work for them. So invest before you spend.
(By Jocelyn dela Dingco)