Mad money: Indulgence that keeps you disciplined

Clients with insufficient resources should be allowed a Mad Money Fund, even if it creates the risk they may not be able to meet their goals

I began a lifestyle modification programme about a year ago. I stopped snacking between meals, changed my diet, exercise and sleep regimen and started taking some additional vitamin supplements. I monitor my sugar levels through a continuous glucose monitoring device to ensure that my sugar spikes are in control. The results are excellent. I get up feeling refreshed, am energised and productive and down to my ideal weight.

Among things I had given up (maida, dairy products, and sugar), I realised I was having the most difficulty with sugar. I tried sugar substitutes like dates, figs, etc, but the craving for sugar felt almost physical on some days. I decided to allow myself some leeway to cheat on my sugar spike targets and started experimenting with small quantities of my favourite sweets, like sandesh, chocolates, and even ice cream to see their impact on my sugar levels. I finally settled on allowing myself small quantities of sweets that had the least impact on my sugar levels even though the resultant spikes took my sugar levels slightly above target. I realised the controlled amount of cheating allowed me to stick to my overall disciplined lifestyle with increased amounts of zeal and energy.

This benefit of controlled cheating that enables one to maintain the discipline and consistency required to achieve difficult objectives have been known to societies for a long time. The bawdy humour-filled traditional gatherings at Holi in Northern India allowed a socially sanctioned letting down of hair in an otherwise deeply conservative society. Limiting it to the Holi Festival and allowing it only in the open under the full gaze of their social circle meant that it mostly stayed within acceptable limits. As expected, such gatherings have now lost their lustre in a society where the line for day-to-day acceptable behaviour is way above what was earlier acceptable only on Holi.

My client, Sudesh, wanted to try his hand at investing in risky start-ups. He had knowledge of his sector and had his eyes on some interesting start-ups in that area. He reasoned that he would learn new things and keep himself current even if the investment was lost. Sudesh had a large investment corpus but had even larger goals. He needed to continue investing in a disciplined manner for a long time to be able to meet his goals. Yet he also wanted to invest in extremely risky start-up ventures.

We normally have the concept of a ‘Mad Money (MM) Fund’ for wealthy investors. They carve out a portion of their investible resources to invest in highly risky ventures. The quantum of such MM Fund is based on the amount they can afford to lose without it affecting any of their goals. In the case of Sudesh, however, his existing investible funds were not sufficient to meet his goals. Hence in the traditional sense there was no space for an MM Fund. That is when the similarity to controlled cheating came to my mind.  It is even more important for those clients whose resources are insufficient for meeting their goals to be allowed to indulge in a controlled cheating experiment, even at the risk of widening the deficit towards meeting their goal. This will reduce the chances of their giving up the planning exercise altogether.

We carved out a small MM Fund in consultation with Sudesh. It was agreed with Sudesh that there was no expectation of returns from the MM Fund. The financial plan proceeded without taking the MM Fund into account.

A client once told me, “All good things in life are either fattening or sinful.” A diet plan for healthy living needs to keep space for controlled cheating for “the good things in life” to increase the chances of achieving the objective of a healthy life. I am hoping this maxim will prove true in the case of Sudesh.

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor

Twitter: @harshroongta