When times get tough, people with an abundance of disposable income are inclined to keep disposing of it while the rest of us are forced to keep our thinner wallets in our pockets.
Capital budgeting is a huge part of business. Being able to make the most use of business capital through budgeting is a necessary part of making the business a success. Capital budgeting enables a firm to allocate money for its long term investments such as machinery, research, development projects, new products and others.
It is indeed true that during tough times, those who have more tend to spend more. People at the lower end of the food chain are also more affected in a recession. Those who cater to the super rich tend to be insulated during when the economy is not doing so well.
Aspirational buyers may not be as liquid as the super rich but they are numerous. They make up a huge part of the population. Their sheer number could influence market trends. According to Andrew Peck, manager of the Baron Asset fund, “the next big frontier for many of these luxury retailers is emerging countries, where growth is faster and the number of affluent people is growing even faster. There are opportunities ahead for them in markets like China and India, where many new millionaires are being created every day.”
John Buckingham is right when he cautioned these "aspirational buyers" not to depend on their shares of stocks alone in times of recession or stock market weakness. An important aspect of capital budgeting is to be able to account for the investment conservatively. The rule never to count the chickens unless they are hatched applies particularly to investments. Knowing the minimum acceptable return of the investment which is termed hurdle rate could help determine the future value of the said investment.
It is important to be conservative in our estimate of investment returns in accounting for capital budgets. Since the super-rich have nothing to lose, the would-be affluent investors should be very cautious in using their capital budgets in investments.
