The saving-spending dilemma: Are you saving for a luxurious future while ignoring present needs?

He sounded very hassled. His daughter-in-law was unwell; the son was too busy with school going children; and he was hungry and did not know how to cook. When I popped in, on my way to the bank, he left the house with me to update his passbook. This 76-year-old held a balance of Rs 2.3 lakh in his savings account. Wouldn’t it have been easy to order food for the entire family and himself with the money jingling in his used account? He told me he is building the balance for the education of his grandchildren. They spend too much, he sighed. Maybe you spend too little, I thought. The inability to balance income and wealth, or stock and flow, as we call it, is so widely prevalent.

Money earned is income, or flow. It is a payout that an asset offers. Human assets earn incomes or salaries; real estate earns rent; equity earns dividend; debt earns interest; gold earns nothing. Over our money lives, we manage both the value of the asset and the income it earns. We primarily spend the income and save a portion of it to build assets. The primary purpose of the asset is to enable future income. Problems arise when we are unable to prioritise what matters. Depending on our life stage, among others, one becomes more important than the other.

I look back at our early earning life in the 1980s. We had been allotted living quarters within the premises of one of the Brooke Bond factories, where my husband worked at the time. The large French windows of the bedrooms impressively opened into the lawn, but we had no money to buy curtains. Our princely savings was then Rs 5,000 in the bank, and an empty house needed the basics. We stuck the weekend newspaper supplement, that had just begun to come in colour, on the windows. The full-page Onida advertisements ensured that we slept with a naughty devil smiling at us. There wasn’t enough to spend as we wished.

We squirrelled away a bit in savings, but there was always some large expense staring at us. I still smile at the benevolent personal finance advice that asks the young to save for retirement as soon as they begin earning. The truth is that there is no money for stocking up as they are busy spending on life. Even in our mid-30s, we did not have much savings. In those pre-insurance days, one hospital bill could have wiped out the little we had.

It was in our 40s that we began to save and build assets, but we lived in times when air conditioners and refrigerators were bought for life. Our next generation upgrades its home— house and interiors—every three to five years. When income comfortably covered the flow of expenses, savings began to build up. Then, as we aged, we found ourselves at the other end of the spectrum. We are in danger of looking like the loving grandpa who cannot spend despite having a pile of idle liquid assets.

Does our money have the flexibility to stock up or flow out as needed? Why do we spend our lives swinging from all flow and no stock at the beginning, to all stock and no flow at the end, with the constant dilemma of having enough of both in the middle? Why are we not able to say how much is enough as we age? Why does the greed to earn more, to stockpile even more, a constant desire when it comes to money?

Yuval Noah Harari, in his book, Sapiens, wrote long ago about the power of human imagination and how our lives are shaped by our ability to think and visualise a future state with great clarity. Our relationship with money, one would think, is also driven by that aspirational state of being. In all our minds, there is a future world in which everything is suddenly better and brighter. In that world, we live without fear and worry, in comfort and luxury, and invoke envy and admiration.

Consider our everyday conversations, not necessarily about money. In some future world, we are reading poetry; we are relaxing by a river with a drink or book in hand; we are walking and lifting, exercising and eating well; and that imagined future world is where things will magically change. If money opens many doors in that future world, we believe we are wise if we provide for it in the present.

The inspiration for our work, our income, and our savings comes from this imagined future, in which we live in homes we own, our children study in the best schools, and we retire happy and secure about old age. There are then the other side stories about holidays, lifestyle, and all else that makes demands on our money. But these are all imagined and romanticised aspirations that lie in the future. We must secure our future, we tell ourselves, as we slog through the present. It is just that the future is a constantly moving target, and life goes by while we are planning and providing for the future.

To complicate matters, we have our near and dear ones who are also imagining our future for us. Parents ask youngsters to buy houses, and friends and peers push us to compete for better jobs, better income and better lifestyles. We are vulnerabe when we compare our lives with others, and reimagine our futures out of our contexts. It would then seem that we might be doomed to remain confused about whether to spend or save, and not find satisfactory answers to nagging questions about how much is enough.While we clearly know if others are spending or saving enough and judge their decisions about both, we are unclear about our own positions.

When I told my friend about our dear grandpa’s inability to spend on his next meal while prioritising his grandchild’s education, his response was: “You personal finance people are always talking about the future and preventing people from enjoying the present. A spiritually enlightened soul will simply spend his income and live happily.” Every stock must flow at some time, right?

(The author IS CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING.)