Earnings, Spending, Saving and Investing….
The current generation is earning very well – remember most of what people considered as ‘luxuries’ in the 1960s, 1970s, etc. are today considered as a necessity. Also if you consider that in the 1970s when salaries were much lower, and taxation were much, much higher white goods were about 2-3 MONTHS income even for senior management. It is like buying a refrigerator for Rs. 600,000!
Increasing salaries and dramatic drop in the prices of White Goods has ensured easy access to these products, but all of it has not made life easy for the kids of today. Why?
Today it is very easy to live beyond ones’ means, is it not? If you pick a magazine you will find about 15 advertisements – of this about 14 will extol you to live beyond your means. If you can afford a Ford Ikon, they will urge you to buy a Honda City. If you can buy a Honda City, they will push you to an Octavia.
If you tell a real estate broker you are looking for a house for 6 million, be prepared to shell out 9 million!
All of this is easy – because there is a huge push to make you think in EMI language – not full price language! Sir a Merc is available for “only” Rs. 54,000 p.m. as EMI!
What are the indicators that you are living a little beyond your means? They are as follows:
a. Your cheques are bouncing! This is perhaps the worst indicator that you are issuing “rubber” cheques…so this is not a good idea.
b. Your credit score (currently in India you do not have a copy of this) is falling and the people who have lent or wanting to lend to you are hesitant about default and are increasing the interest rate..
c. You are saving less than 15% of your salary!
d. You are charging everything to your credit card and are paying only a part of the amount! I hope you noticed Hdfc bank has raised the interest charges to 3.25% p.m. Try compounding it on a monthly rest basis, and you will be stunned!
e. You have 4 credit cards and you are borrowing from one card to pay the other 3!
f. More than 30% of your earnings are going towards EMI payments
g. You do not have an emergency fund, losing your job is one of the nightmares you go through regularly, one small repair like having to replace your car tyres can create hell for you!
h. you are happy visiting your parents for 10 day vacations because you can save some living expenses
i. if you will touch your parents’ kitty for your purchase of car, bike or your marriage expenses.
j. your marriage expenses was paid for by a bank, and you are paying the EMI on that. This is really bad, every month over the next 5 years your bank will remind you of your blunder!! L O L. Now you are mortally scared of pregnancy!
if you have any of the above mentioned problems, you need to set your financial house in order. TODAY. Procrastination is just refusing to accept that you need help….
Mans
This is a great article Subra, Thanks for writing this. After so many raves on various topic in the past weeks, I had a peaceful mind focusing on something positive – On my earnings, savings, investment. Please write more blogs like this.
anush
The previous generation considered two things as major expenses, building a house and a daughter’s marriage. I guess the same holds true even today. Sometimes you fall a victim to your own greed or to the circumstances. For example I purchased a flat when in 2007 and four years down the line the project is only 80% completed and the builder does not have enough finance to complete it while I continue to pay emi. Options ahead are limited. Legal option.. not sure
anush
Thanks Subra, for a post that makes people THINK
anon
well said! as one of the parsimonious generation I’m feeling sufficiently virtuous. 🙂
frankly unable to understand the hurry to upgrade to the new NEW.
What exactly is going to happen if a phone or TV or fridge is outdated?
pravin
well,the previous generation should actually call their so called “virtue” as majboori ka naam mahatma gandhi. you can make prudent financial decisions now as much as you could be a wastrel 30 years ago. atleast today the irresponsible person will be held accountable sooner than later -by being repossessed or going broke. in the 70s with the 3 month public sector strikes and govt shutting down due to to railway strikes,the people had NO choice.life was miserable
SAM
Subra,
Escaped everything mentioned in your post, except the EMI part. It was killing, but worth it.
But, kids these days like to live it large – car has become a necessity, as have ipads, itouch, flat screen LEDs etc.
Unlike us, they do not believe in delayed gratification! So there….
Sachin
A suggestion, learned from the mistakes I made –
If you have really old appliances at home do not be in a hurry to replace them.
Today’s appliances have a bulit in date of obsolescence. (It is similar to ‘apoptosis’ – a biologic term for programmed cell death). The product are almost programmed to ‘die’ after a few years.
Let me give you examples.
We had an old GEM refrigerator for 35 years. I replaced it 5 years back with a new Electrolux which has conked out this year.
We used the original ONIDA color TV for 21 years. Bought a LG 5 years back which is now giving problems.
We have a washing machine (videocon – probably fully imported from Japan), about 20 years old – still using it.
Had to change the refrigerater, resisting the urge to change the TV again, not even thinking of changing the washing machine.
You buy an electronic / electrical appliance, it will be out of date in a few months and will literally ‘expire’ in a few years.
Sorry if I have changed the topic, but since we were talking aboute spending, I though I would share my experience.
subra
Most of them miss the frugal living part…without realising that they will lose their jobs when they are 45-50 (we are a young country, so when the economy stagnates it will be cheaper to replace the old with new!). People in their 20s today WILL have a lower standard of living in their 50s than what their parents are having today 🙂