How to achieve financial well-being

We’ve learned about how to save, but actually being able to save can present major challenges, especially when there are so many things we have to spend money on every day. So, how can you save and achieve your financial goals while being able to ensure a full and satisfied life?

Tuan and Mai could choose to save and spend sparingly, with about VND 5 million per month, for the next 6 months or a year. However, can Tuan and Mai both be satisfied with a frugal life and find positive energy in life? Such energy comes from food and essentials, from maintaining relationships (watching movies, weekend coffee, etc.), and from buying yourself the necessary equipment.

THE ANSWER IS YOU NEED TO BE A SMART CONSUMER.

A smart consumer has a good background in finance and consumption. They understand important consumer finance rules that help them filter, evaluate information, and then make smart decisions in each specific consumption case, based on their wants and needs.

SO, WHAT ARE THE RULES THAT HELP THEM MAKE DECISIONS?

RULE NO.1: KNOW WHERE ONE IS

Smart consumers can assess their financial health. They know which assets they own and at what level their income is, what thresholds they should not cross. Thus, they spend wisely, using the 50-30-20 rule, on their essentials and non-essentials. According to this rule, 50% of your budget is for daily essentials, 30% is for wishes and hobbies, and 20% is for savings and investments for future needs and goals (of which you can invest in areas that you consider to have good potential). Following this rule means you won’t spend too much on unnecessary activities.

QUESTION: HAVE YOU ASSESSED YOUR FINANCIAL HEALTH?

Tuan and Mai have established a financial health assessment chart and balanced their sources of income and expenses for the month. They also have a weekly list of essentials, and a year-end wish list. How can they balance their sources of money and afford their entire list of needs?

Again, Tuan and Mai review the 50-30-20 rule, all sources of income, and required expenses. Accordingly, Tuan reduces unnecessary expenses, cuts out purchases in excess of 30% for non-essential spending, sets aside at least 20% to pay off undue debts, and finds another part-time job to secure his motorcycle loan repayment. Mai has a plan to live on her own, so she will have to accumulate enough money for her own life next year.

RULE NO.2: DELAYED GRATIFICATION

A smart consumer knows what they want and needs to satisfy their desire. When they stop buying something out of habit and only buys it when required, they find they are much more interested in the item! This is the act of delayed gratification.

Delayed gratification is the ability to postpone an immediate gain in favor of a greater and later reward. A person resists the urge to receive an immediate reward and instead waits for the reward to arrive at the right time. A proven paradox is that the more a person shops, the harder it is to be satisfied. Understanding this secret consumption habit can help a person manage their finances and still achieve satisfaction in consumption.

QUESTION: WHAT CRITERIA DO YOU USE TO DECIDE WHETHER TO BUY A PRODUCT?

Tuan and Mai make detailed shopping lists for the week and month and prioritize what they do and don’t need to buy at that particular time.

They still need to eat good food, dress beautifully, and feel satisfied with life. However, the food doesn’t need to be fancy, so Tuan and Mai can cook at home to save money rather than eat out. Mai needs to cut down on purchases as much as possible, so when shopping, she chooses to only buy clothes that can be worn together to ensure that they are both beautiful and suitable for her profession. The two both love to travel, so need to choose ways to travel that are inexpensive, so they can have fun and be close to friends.

RULE NO.3: BALANCE BETWEEN EMOTION AND REASON IN CONSUMPTION

Smart consumers can balance emotions - love for the product, and reason - information about the product. They take the time to look for information about price, quality, warranty, and attached utilities. They are prepared to spend a lot of money on a quality product that can be used many times for various purposes, instead of a cheap product that can only be used a few times. They are also not easily influenced by advertising and high value but impractical discounts.

QUESTION: IS YOUR SHOPPING DECISION BASED ON EMOTION OR REASON?

Both Tuan and Mai used to make emotion- based decisions. They were easily influenced by external factors such as advertising, promotions, or friends’ recommendations. So, despite their good income, they rarely saved any money. Whenever they had spare cash, they ended up spending it rather than saving.

Now they have learned how to plan consumer finances and outline the basic criteria for decision-making for themselves, although advertising, promotions, and advice still have an impact on them, their spending decisions have become more reasonable. Now, they both know how to consider their own financial situation as well as their immediate financial goals before buying something. Each day, they set reasonable limits on their spending and within the first few months of following the plan, they both know how to strike a balance between emotion- and reason-based spending.

Every good habit deserves a reward to make it a joy, not a challenge. Giving up the habit of shopping for non-essentials means that longer- term goal can be achieved faster and buying essentials only will create more values.

SMART CONSUMPTION IN THE NEW ERA?

The most recent surveys show that consumers are becoming smarter. According to GE Capital Retail Bank’s 2019 annual report, to make shopping decisions, 81% of consumers research products and prices through multiple sources of different information, thereby actively making consumption decisions.

What’s more, consumers also have more choice when looking for financial sources to support their consumption, especially for urgent needs. Mai’s goal is to buy a laptop for studying and to help her find jobs online. Mai also wants to become more independent and move into her own apartment, so in addition to a source of savings, she also needs to carefully prepare for her new place. This requires Mai to make a reasonable plan so that she won't need to save for too long to buy the essentials, but also ensure that she won’t have to worry about high interest repayments. Mai can learn more about external sources of finance such as family loans, bank loans, and consumer finance loans from reputable consumer finance companies. Information is now available, she just needs to outline specific criteria to see what the most convenient source for her to borrow from is.

A smart consumer knows how to balance between present and future goals, real needs and wants, emotions and reasons. Moreover, they master and adhere to important spending rules. For them, life is a journey of experience, and they are happy with every moment of their life. Each destination is a stop, allowing them to have small celebrations. A nice little gift, or a delicious cup of coffee is the motivation they need to help them go further in their journeys.