Compulsions & Essential Requirements of Families
"I earned so much, where did it all go?" The answer usually lies in Compulsions. These are the "Social Taxes" we pay to maintain status or relations.
1. Classification of Expenses
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A. Essential Requirements (Needs)
Non-negotiable expenses.
- Inelastic: Price rise doesn't stop consumption (e.g., Milk, Medicine).
- Management: Focus on "Smart Buying" (e.g., Generic medicine vs Branded, Saver packs).
B. Compulsions (Social & Cultural)
Expenses driven by "What will people say?".
- The Big Fat Indian Wedding: Spending lifetime savings on 3 days.
- Gifting: Expensive gifts during Diwali/Rakhi.
- Status: Buying a big car to match the neighbor.
C. Discretionary (Wants)
Pure voluntary spending.
- Easily cut during hard times (e.g., skipping a vacation).
2. The Budgeting Rule: 50-30-20
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3. Case Study: The Wedding Debt Trap
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4. Managing Essentials: Fixed vs Variable
- Fixed Essentials: Rent, School Fees.
- Control: Hard. Taking a cheaper house is a major decision.
- Variable Essentials: Electricity, Grocery.
- Control: Moderate. Switch off ACs, buy wholesale.
5. Exam Notes: How to Write Answer
Question: "Distinguish between Essentials and Compulsions." (5 Marks)
Key Points:
- Driver: Essentials driven by Survival; Compulsions by Society.
- Elasticity: Essentials are Inelastic; Compulsions are Elastic (can be avoided).
- Examples: Food vs Wedding feast.
- Impact: Essentials maintain life; Compulsions maintaining social standing often destroys wealth.
Summary
- Needs: Cannot be zero.
- Compulsions: The biggest leakage in Indian households.
- Budgeting: The art of prioritizing Needs > Savings > Compulsions.
Quiz Time! 🎯
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