Aspirational spending: Good or Bad?

“Teach your kids to save at an early age, they say. Allow your kids to be a dreamer and have aspirations. Instill in your kids the habit of being mindful about money.”

These are the value systems ingrained into each one of us since childhood and that is the foundation of what we are today and where we are heading from hereon.

Aspiration is looked at in a positive light here, however, when it comes to aspirational spending or goal, it immediately has a negative connotation. It is time to clear the confusion and deception around the term aspirational spending.

Aspirational spending is investing in something that reflects what we want to do or where we want to be at some point of time in the future. It does sound optimistic and hopeful, right? Well, it certainly has a nice ring to it.

It is important to distinguish between aspirational spending and impulse spending. The former one has a meaningful value attached to it like I am investing in foreign language courses that are a bit expensive than normal courses, however, I aspire to become a linguist in the future. That’s my calling. The latter one is unplanned, spur of the moment, and may not actually have any value attached to it like I am buying a diamond tiara, which is quite irrational because when am I ever going to use it? Certainly, I am not the Queen!

Aspirational spending comes with accountability. It is spending with some purpose in mind. It can be for upskilling, status, popularity, creativity, health and wellbeing, or even for being financially independent.

From spending on an exclusive health club membership to subscribe to the best entrepreneurial magazines, all aspirations are meaningful till you follow through with the intent of spending on those aspirations.

With no judgement on your aspirations, here are the 3 best steps to start saving towards your aspirational spend:

Start small

After meeting your financial obligations and saving for your financial goals, start small to build a corpus for your aspirational goal.

For instance, a place you visit regularly has free parking up to 100 cars on a first-come basis else it is Rs. 50 per day, 10 days of the month you reach early and manage to get the free parking and save Rs 50. Voila! Now you can put that Rs 50 x 10 = Rs 500 into your aspirational expense fund.
No cutting expenses, no digging into present savings, just starting small and building up that corpus slowly and steadily.

Explore low-cost options

It’s always good to know all the low-cost options to finance the aspirational purchase irrespective of having the desired corpus ready. It can be a no or low-cost EMI plan, a credit card offer, or using vouchers and discount coupons.

The best way to find the best option is to find the best deal online or offline.

Let’s say you have an aspirational goal to buy a camera to further master your photography skills, it’s helpful to look for prices online and in-store, enquire about any beneficially deal or financing option available, and then make the purchase. Low-cost financing options usually allow deferred payments, this way you can make the optimum use of the funds you are setting aside for your aspirational purchase.

Schedule investment smartly

Once you have the money set aside for an aspirational goal, it only makes sense that this money grows and gives you some returns.

The best scheduling practice is to start a minimum amount Systematic Transfer Plan (SIP) at the end of the month, when all your expenses are taken care of. So, that Rs 500 you saved earlier can be part of an SIP.

Anything excess of the minimum SIP amount can always be invested smartly in lump-sum form aligned to the same goal.

Depending on the value of aspirational spending and target time frame to accomplish that goal, the investment can be made in the various available option.

If the goal is to be realized within 1 yr, the best option is to invest in a Liquid Fund since it gives easy liquidity and low risk.

Anything longer than a year, the options can vary depending on the risk appetite and liquidity preference.

(The author is Associate Fund Manager- Alternative Investments, Quantum AMC. Views expressed are personal.)