CONSUMED BY CONSUMPTION
aggregated economy of a country, continent or planet.)
In
Chilton outlines this macroeconomics formula: DY = C + S, which means that in a large economic unit such as an entire country, DY stands for aggregated Disposable Income, C for Consumption, and S for Savings. Then — and this is cool — Chilton uses that macroeconomics formula to zoom down to the microeconomics level of one person! Let’s imagine it’s you or me.
At our micro level, our disposable income or DY is our income after we pay our income tax. So, as DY = C + S, we see that for each RM (or every 100 sen) of after tax income we have at our disposal, we may choose to Consume and thus spend it, OR Save and invest it. C and S are the only two choices; it’s a simple equation.
So perhaps we allocate 99 sen on Consumption and thus 1 sen on Savings, or 90 on C and 10 on S, or 60 on C and 40 on S; you decide on your own C and S as long as your equation balances with your DY. obvious and somewhat logical to behave like the fun-loving grasshopper in Aesop’s fable of But, as Chilton writes:
“There’s a breakdown in logic. Remember, later in life we’ll all stop working. Our DY (Disposable Income, to remind you) will no longer come from our employment income — it will have to come from our S.
“No S means no DY. No DY means no C. No C means no... well, let’s not even think about that.” Chilton makes a powerful point we should all think long and hard about because it describes our future.
When I work with my financial planning clients, I focus on helping them divide their ‘S’ into ‘s’ and ‘i’, meaning actual savings and investments.
Each of us has a choice to make: Will we live mainly for now and allow our unbridled appetites to lead us to excessive consumption today that denies us a prosperous tomorrow? Or will we aim for a healthier balance between consumption for today and savings for tomorrow?
My recommendation: Don’t sacrifice your future abundance marked by healthy inflows of passive income for short-lived baubles and trinkets today that will cost you and your family a great future tomorrow.