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For ages, economists have defined necessities as food, clothing and shelter.They are certainly out of step with times.Education, medicine and vehicles have slowly made inroads into that list.Though these three new entrants have yet to receive the recognition from economists as necessities, monthly expenses of every household have some amounts invariably spent on these three.
Food covers morning tea bags or tea leaves, sugar in whatever form, milk for those who like it with milk, bread, butter, cheese, cereals, oats, cornflakes, vegetables, pulses, edible oils, fruits, coffee, and even the sauces, fruit juices, jams, soups and other ingredients used in cooking.Note that candies, cakes, rums and beers, even though ingested through the same route, do not qualify as food.In fact, they cannot be realistically classified as comforts or luxuries either.Because luxury is a category symbolizing lavish spending, these items have been universally identified as luxurious spending.
Similarly, clothes for meeting day-to-day requirements are necessities.Party gowns and not so frequently used attires fall under comforts or luxuries.Clothes also cover footwear, handbags (even though most economists would be confused about this), handkerchiefs, socks, warm clothing, overcoats, etc.Again, the number, cost, and usage are important.Imelda Marcos, former first lady of Philippines had many pairs of shoes, and many dresses.Beyond a particular number, these items become luxuries.Similarly, it is not necessary for everybody to wear Gucci or Chanel to school.They are beautiful and fashionable, but expensive brands, and therefore, luxuries.
Expenses towards shelter in the home finance include rentals or house loan installments, utility bills, house maintenance bills including plumbing, painting, fumigation, etc.Even beds, blankets, bed sheets, bedspreads, linen, curtains, kitchenware, stove, etc.can be classified under this.Cost, size and number are important here too.
There are a number of other items such as toothpaste, soaps, hair oil, deodorants, combs, and the like, which were inadvertently not classified as necessities by economists.These items, because they relate to personal hygiene, and are important for physical health, can be classified under medicines, and medicines can be classified as necessities.
Different forms of commuting starting from kids bicycle, to adolescents two wheelers, and office going family members car, all require fuel or maintenance.These too can safely be classified as necessities because without making a provision for this, it would be difficult for the breadwinner to bring home the income.Formerly, these were classified as comforts.But then, place of work or study was not miles away from home.Breadwinner, however, cannot commute in two cars, and therefore, the second car, if bought for weekend display would be luxury.Installments on car loan also fall under this category.
Without education, kids have no future in these days and times.Therefore, childrens school fees, school bags, uniforms, books, pens, compasses, etc., can also be classified as necessities.
After having tackled all the expenses expected to be incurred towards the necessities, the next allocation from monthly income is towards comforts, such as house help, charges for nanny, if any, and so on.Comforts are meant to make life easier.Eating outside, and buying a washing machine are two types of comforts.Installments for television set, telephone charges, etc.are comforts.These too have now come closer to becoming necessities.Indeed, there are very few households that do not own a television set.
Having amply allocated funds from monthly income towards the above necessities and comforts, the balance amount needs to be invested carefully for future requirements or some family vacation or luxury item.
Before venturing to buy another luxury item, or going on an expensive vacation, considering retirement planning, and family health would be a worthwhile idea.
Every household must, therefore, have medical insurance.Not less than 1 percent of monthly income should be used to buy health insurance for the family.If possible, an amount not less than 10 percent should be invested in some retirement plans.Retirement plans compound the funds so invested.These funds generate income, which starts trickling in when the pay packet stops.A regular investment of 1 percent of monthly income in stocks would help beat the inflation at the time of retirement.However, investment in stocks requires skills, which not everybody possesses.Therefore, opting to invest in Exchange traded funds or mutual funds would be a nice way of going about it.This does not mean that investments in these funds are secure.They are merely invested by somebody who has better knowledge than a lone small investor.
Having provided for the above, if an individual is left with some surplus, then two percent of the monthly income should be invested in short-term deposit for family vacation and another two percent should be invested for family exigencies.If there is some more to spare, investing in gold jewellery may be considered.This is an ancient form of investment that has dual advantages.The lady of the house gets to brandish her jewelry, and in case of family emergencies, the jewelry can be mortgaged or sold.
At any time, only half of the funds from family vacation deposits should be withdrawn for vacation.By doing so, some amount is always available for other celebrations such as childrens birthday parties, marriage or housewarming gifts, Christmas gifts, etc.A strict adherence to this type of planning will ensure that there are no financial problems for the family.Even the post-retirement period will be free from financial worries if the planning is done in such fashion.
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