An open letter to investors: Splurge but only if you must

Note: MoneyTales of Lovaii with MintGenie is a series that helps investors make better sense of their money. Our aim is to help you make better saving and spending choices.  

Dear investor,

Don’t throw it away. That’s exactly the wise advice I had given my friend. Those were the days when I had just started out as a financial advisor. Both financial advisors and big fat bonuses were rare in those days.

Looking back, I can’t blame him for walking away in a huff. He had come to me all smiles, full of plans ranging from grand parties to a foreign vacation. I sat him down and told him why he should not do all those things. He called me a killjoy (actually, he had used a stronger, NSFW word).

Before you judge me, let me tell you why I had given him that advice.

Be bonus wise

He had a housing loan going. His children were in the final years of school and college admission was round the corner. He was supporting two sets of parents, all four of them on the wrong side of 60.

I told him to repay a substantial part of the loan. That would help him to bring down the EMI on the outstanding amount.

Then I told him to start an education fund for the children. No point in running around for funds or picking up the burden of another loan the day after the results.

And he needed to review the health insurance cover for both sets of parents. Not only that, as insurance was unlikely to cover every health expenditure, he better put away some money for their care, just in case.

If he had waited to hear me out, he would have heard about my plans to celebrate the bonus also. Why a foreign vacation? Has he been to all beautiful spots within the country? Should he throw a party for all his friends? And can the new car wait, even if the down payment is small?

You can do it too

My dear investor, if you were to ask me today, my advice would be the same. Use your bonus first to reduce the bleeding (that is what another advisor friend calls loan repayment). Next, provide for both the known (college fees) and the unknown (health expenditure). Need to buy an asset that can make life easier and more efficient for you (a scooter or a small second-hand car)? Go for it! After you have made all these allocations, use what is left to celebrate.

By doing all this consciously after careful planning, what you are effectively doing is stretch the benefit of that bonus for a longer period. Let us imagine that you use your bonus prudently and systematically for five years. Chances are you might be able to take that grand vacation in the sixth year without disturbing any of your investments and without cutting back on your lifestyle.

How to plan

Do you think it is too complicated to do all this planning? Simple! Contact one of my colleagues and they will be happy to do all that work for you, honestly and efficiently. And you will discover that they are not as much of a spoilsport as I used to be!

Before I close, let me tell you the interesting part, the twist in the tale. My friend came back to me the next year. He had thought about my advice and acted accordingly. He found it sensible, though he never told me that in those many words. Now he has been our client for several years and does not hesitate to recommend us to others.

The best part is thanks to all the great planning he does (with a little help from us, of course) he is able to throw a grand bonus party once in a while. And my being invited to them is my bonus.

Lovaii Navlakhi is the Founder and the CEO of IMMPL. He can be reached here.