You must have heard this story before – There is this successful rich old guy taking a walk through a park and notices a boy lounging under a tree and doing nothing but counting the clouds in the sky. “Shouldn’t you be in school young man?” he asks. “Why?” the youth wants to know.

“At your age, you should be working hard to get a good education”. “Why?” the kid asks again. “You could then get a good job and if you work hard at it you can make a lot of money”. “Why?”, the boy asks again. His vocabulary seems rather limited, and the old man is starting to lose his patience. “Then you can enjoy your life” replies the wise old man. “What do you think I am doing now?” says the young man!!

Who is correct?

The rich old man or the idle boy? You will find there is no one correct answer. That story is the fundamental dilemma which every investor has to confront and resolve –

“Do I focus on living an enjoyable life today? OR

Do I deprive myself of the pleasures of spending my money today and invest it for an enjoyable life in the future?”

Firstly, most societies have traditionally turned “Spending Vs Saving” into an “ethical” question. And “Spending for pleasure or happiness of oneself” is deemed a sign of moral turpitude. But that is a misbegotten belief. “Spending money for pleasure” does not necessarily mean choosing a decadent, socially irresponsible lifestyle. Even the most exalted lifestyle of a selfless philanthropist needs money to be spent to support it. So, there is no reason to frown upon “Spending money for pleasure”.

With that out of the way, how do we then rationally resolve the question of “Spending Vs Saving”? In the first place the correct expression of this question should be “Spend Now OR Save and Spend in the Future.” Because if all you intend to do is to save and never spend it, then it’s largely pointless to take the trouble of saving it.

From this point of view, what is important is to clearly understand the things you need to and wish to spend your money on at different points of time – now and later – until you are no longer among the living. For quite some time after I started earning, I never bothered to do so and now when I look back on that period, it definitely seems like the funds that were available during that time could have been put to much better use – both for immediate pleasures and for the future – if only I had clarity about my needs and desires then.

An investment plan is not about planning when to buy some asset and when to sell it. It is neither about timing nor about selection of the best product.

An investment plan really is about; On one hand, figuring out the why (purpose(s)) for which you would need money over your lifetime, how much money would you need and by when would you need– the keywords being purpose, how much and when! And on the other, estimating your cash inflow over that same period of time and then trying to match the two!

If these two things match perfectly, you are like that boy in the story and the answer he chose, will be the right answer for you too. However, if you are like most people, the two will not match perfectly. If you are like most people, “How much” will steadily increase as you look farther and farther into your future, and inflows will dwindle as you get older. It is that gap that therefore will get created, between what you need to spend and the cash inflow, which you must try to fill. The best way to do so, will be saving the excess which you have today for the shortages which you will face tomorrow. That is the answer that the old man in the story thinks is the right answer!

Of course, you know all this already, right? All of this is oh, so obvious!

BUT what is surprising is, so many of us and that included me too at one time, do not consciously accept that an investment plan is actually a plan for SPENDING money at the right time. And without a serious thought given to that, a plan that only tells you when to buy an asset and when to sell it, is pretty much useless. Because such a plan is most likely to make money available to you when you don’t need it and might not deliver sufficient when you do need it!