Lifestyle choices

AS IN ALL THINGS dealing with economics, lifestyle choices can be viewed in terms of cost and benefits. A certain way of living (sometimes, only aspirational) ends up as a cost. And the benefit? Status, keeping up with the Joneses, and being accepted in one’s desired social group are benefits that promote contentment, even if temporarily.

What drives the lifestyle choice? Is it affected by the rise and fall of income? Is it a way of putting a number on the costs of social acceptance?

In case of declining financial prospects (like losing a job with all its perks) the common lifestyle advice is to “tighten the belt.” This metaphor of moving one hole or two inwards for an accessory that holds up the pants may ironically give the image of getting physically fit, in the face of its financial opposite. The smaller waistline is usually associated with being on an enforced diet.

These appeal to old-fashioned values of thrift which are attributed to an older generation that didn’t have cell phones, online transfers of funds, and easy credit card loans. The oldies had a saying that even a big mountain can be turned into rubble with excessive spending. In this adage, one only had access to a single mountain of wealth.

The lifestyle choice is about desires. The once poor celebrity looked at the lifestyle of the rich and famous, and worked hard to get where she wanted to go. The disadvantaged youth dreamt (interviewers never use the word “envy”) of a lifestyle which didn’t have to pinch pennies. And then she became a bit actress and met a dazzlingly rich older partner. She is now the subject of interviews in her new mansion and taking the awed interviewer around to the swimming pool area. (Inday, under whose name is this house?)

Lifestyle costs fall in the realm of “discretionary spending.” This is different from cost-of-living items like rent, food, tuition fees for kids, utilities, and commute costs to go to work. This obligatory spending also includes amortization for the house, taxes, and restaurant meals as well as contingency costs like healthcare, but not necessarily cosmetic enhancements.

Discretionary spending often has more to do with status issues than bare necessities. The former involves unnecessary or avoidable expenses which can be postponed until investments recover sufficiently to exceed financial obligations.

Here’s an example of how to cost a lifestyle choice.

First, add up the monthly basic costs like groceries, bills, tuition, and other recurring items. This is matched with current (and expected) revenues which should then yield a positive balance for discretionary spending.

The more aggressive supply side approach starts with the “wish list” (maybe, a Caribbean cruise) and then works backward to the revenue needed to achieve material Nirvana. It is then a matter of applying a reality check on available cash flow, maybe adding the value of art works for auctions.

As one gets to retirement age, revenue streams start drying up. The lifestyle computation may need to be adjusted, usually downwards. When only savings or retirement pay remain, costing out a lifestyle is even more critical. It is possible to compute how long the money will last at the present “burn rate,” without the kindness of relatives and strangers. (Let’s pass the hat for his illness.) How much does one spend in one month (including credit card use)? This number serves as denominator to determine how many months the savings and their pathetically small interest will last. This is not counting contracting a dreaded disease.

It is best to think of one’s children’s role in the lifestyle issue as limited to occasional treats like dinner or even a free trip abroad in business class. To depend on others, no matter how close a relative, is a recipe for disappointment. A feeling of entitlement must be avoided.

Financial responsibilities of children, which are not enforceable, may appear to enhance the purchasing power beyond the parents’ savings. But such dependence erodes the right to give an opinion (e.g., home cooking or eating out) or even the option to give financial advice. The obligated benefactors have their own lifestyle choices to maintain or enhance.

Anyway, lifestyle can often be no longer a matter of choice… but acceptance.

lnTONY SAMSON is chairman and CEO of TOUCH xda

Vice-President for Sales and Marketing Advertising Manager Circulation Director