From the Economics Times - Times of India Publication * 29/01/2010

Let needs, not wants, decide your buy list

Your financial well-being depends a lot on your ability to draw the line between your needs and wants. Vidyalaxmi helps you with the process


AMEDIUM-SIZED departmental store in Mumbai has stacked a range of imported eatables such as Oreo Cookies, Kraft cheese slices, Pringles, and Tobleroneon in the front rows of its shelves. It seems like the store manager has smartly hidden desi products such as Parle G, Amul Cheese or 5-star behind the foreign goodies to earn on the differential pricing. But the store keeper has a different explanation for the display . He pins it down to customer preference for these products over their Indian peers. Whether his explanation seems convincing or not, the fact is that aspiring Indians are moving more towards a want-based spending pattern than a need-based one.

Needs vs wants


Its easy to differentiate between the two if you go by a textbook definition. But in reality, the distinction is difficult and has been getting narrower over the past few years.
Today, a car has become an emotional need despite the existence of an efficient public transport system. The need for a car has transformed from a status symbol to a luxury to a basic necessity now, says Amar Pandit, a Mumbai-based certified financial planner. The same logic applies to food. From home food to a fast food joint, today customers expect a fine dining experience and not just good food. This ambience comes at a premium and people just dont mind paying for it.
The fact is, wants are unlimited and often the lines between needs and wants get blurry. Hence, one needs to get into introspection before giving into the urge to splurge.
Lets assume a family of four spends Rs 8,000 on food, Rs 25,000 on shelter (Home loan EMI), Rs 20,000 on education and Rs 10,000 on transportation in a Metro. Now calculate the difference between your expenditure and the above example. All you have to do is to write the basic price list and the cost of living in your city and compare the areas to give you a realistic picture.
If you need a mobile because you have a field job, its a need. But if you insist on the latest gadget which you can really afford, its a want. That was an easy pick. But it gets difficult if you have to trade off a washing machine for a refrigerator or substitute a radio with a home theatre-cum-music system.
Additionally, enlist the recurring expenses such as utility bills, transportation and mortgage payments/rent and trim such expenses. They have a higher impact on your overall budget.

Are you saving enough


Its not wrong to give into wants or aspire for a certain lifestyle. It has to be backed by a sound bank balance after providing for future and other necessary expenses. The thumb rule is to save at least 25% of your take-home income. Otherwise, theres a serious problem with your lifestyle, Mr Pandit adds. At this stage, you have to critically evaluate every need and examine if its really a need or just an impulse buy.
Everyone aspires to own a huge house in a dream location. But you have to question if you need it and if you can afford such a big house at that prime location in the city, says Suresh Sadagopan, a certified financial planner at Ladder 7 Financial Advisors.

Why does it matter now


A few years ago, people were constrained by their salary levels. More often, the companies would save on their employees behalf by putting a substantial portion of their salary into PF, gratuity, etc. Now the employees are enjoying a higher disposable income without realising the downsizing in the PF and other saving components . Year 2009 was a particularly difficult one with job losses and paycuts . Hence, you should be financially equipped to handle such circumstances in future.

Retail therapy


Sneha Dharmarajan, a Mumbaibased psychologist, explains. This is a new term coined for people who treat shopping as a mood uplifting exercise . Often people say they feel euphoric after shopping even if they had a not-so good-day at home or work. But what they dont realise is that many do not feel so happy later as its just a temporary feel-good defence mechanism. At such times, you should just distract yourself with a favourite activity like listening to music or reading a book, which has longlasting distracting effect, she adds.

What implications does it have


It could be a root cause for personal finance disasters. By earmarking higher funds to tangible wants, people are unable to save or invest their money for future needs. Every rupee value has an opportunity cost, which is gained or lost, depending upon where you have deployed it. The opportunity cost is highest if invested, high if saved, lower if repaid and lowest if spent.

ENTER THE WORLD OF RETAIL THERAPY



Prepare a shopping list before you enter the supermarket and stick to it



Visit the supermarket only once a month for groceries and other utilities to reduce impulse buys



Check your neighbourhood grocer. He may offer the best deals in town



Keep switching to a low-cost tariff plan on your mobile phone and review your plan once in three months



Drop the high-cost channels on Cable TV. You can keep one educative channel for your children



Keep a back-up emergency fund



Chalk out your expenses and plug the leaks



If you are compelled to buy an item, come back to it the next week to reassess the need



If you are planning to upgrade your functional television, its a want



Dont swipe your credit card for recurring expenses such as groceries, vegetables or essentials

Missing state by Manas chakravarhty , Mint

India's GDP (gross domestic product) data do not add up. ndia's GDP (gross domestic product) data do not add up.
An entire state about the size of Uttar Pradesh (UP) appears to have gone missing. This Lost Pradesh, or Errors and Omissions Anchal or Discrepancy Nadu, call it what you will, fluctuates in size from year to year, but seems to be mysteriously growing larger and larger every year.

Why do I say there's a missing state? The answer is simple: if you add up the gross state domestic products at constant prices put out by the various directorates of economics and statistics in the states, the total is lower than the GDP of the country, as computed by the Central Statistical Organisation (CSO).

If you go to the CSO website and look at the state domestic product at constant prices, 1999-2000 series, you'll find a list of all states and Union territories (UTs) with their GDPs. At the bottom of the list they also have a line for all-India GDP 1999-2000 base, which seems to indicate that it's the sum of the GDP numbers of all the states and UTs. But it isn't so.

What is remarkable is that the totals of the states and UTs do not agree with the all-India number. No wonder CSO is at pains to point out, at the bottom of the table, that the state GDPs have been supplied by the states directly, which implies they aren't responsible for it. (This is GDP at constant prices, 1999-2000, at factor cost. The all-India figure for GDP at market prices, base 1999-2000, is even higher). At the very least, they should have had a row containing the states' totals and added a note about the discrepancies.

I would have expected that, left to themselves, the states would have been interested in showing a higher state domestic product. After all, West Bengal's growth in GDP in the 1990s had attracted plenty of scepticism, because there was little evidence on the ground to show that the growth was indeed taking place. The implication--the state was fudging its GDP data.

But if all the states inflated their GDPs, then their totals should have exceeded the all-India figure. But the reverse seems to be true. All-India GDP is much higher than the combined GDP of all the states and UTs. And not by a small amount either; in 2006-07, for instance, the total of the states' GDP was Rs26,17,531 crore, compared with Rs28,71,118 crore for the all-India figure. That's a difference of Rs2,53,587 crore, or more than the GDP of a large state like UP, whose GDP in that year was Rs2,37,420 crore. The discrepancy is as high as 8.8% of the all-India GDP for 2006-07.

But why should the states underestimate the size of their economies? That's why it looks like we have a very large well-hidden state that appears in the national GDP data, but doesn't figure in the states' list.

The first chart gives you a picture of the discrepancies.
Since the discrepancy is not constant, there's also a difference in the rates of growth of the economy if we take GDP according to the all-India figure computed by CSO, or if we go by the totals of the states. The second chart shows the difference between the growth rates. The difference in growth percentages is not much, except for 2005-06, when it was as much as one percentage point.

This is, of course, not the only discrepancy in the computation of GDP. When calculating GDP at market prices, for example, discrepancies add up to a substantial amount. For instance, CSO says that the sum of the various components of expenditure in the second quarter was lower than GDP at market prices by 2.1% in the second quarter of 2009-10. In the second quarter of 2008-09, this difference was as high as 7.6%.

Interestingly, the difference between the states' total and the CSO all-India figure has been increasing, as is seen from the chart. It was 8.2% of all-India GDP in 2001-02 and 9.4% in 2007-08. The 2008-09 states' total, however, should be larger, because GDP figures for Nagaland, Tripura and the Andamans are not available. Once these numbers are in, the discrepancy for the year should be slightly lower.

The data for 2008-09 haven't been taken into account as they are incomplete, with only 18 states having declared their GDP, according to the numbers made available by CSO.