Earning well but poor…part 1
Ok not exactly poor, but you are 30 years old, married to a 28 year old earning well but BROKE. Poor maybe too harsh – but if all you have to show for 6 years of working is say Rs. 10 lakhs in the bank, well you are almost there.
Your story?
Let me tell you MY observations. Remember these are the observations of a 50 year old – born and brought up in a country with rations, shortages, tough job conditions, etc. To that extent there is likely to be bias – but liberalisation happened when we were 30…so we to did get the benefit of the 8% growth!!
Here are the reasons that I think what keeps you poor:
1. Not understanding finance: Absolutely no attempt was / has been made by your parents, our education system, etc. to teach you finance. So you do not know it. I wish we kept saying ‘financial learning’ so that people would have made an attempt to ‘LEARN’ instead of expecting people to ‘TEACH’ them financial planning.
2. You are financially scared: The only finance you learnt is from your parents – who were financially illiterate. This meant you thought money should be kept ONLY and ONLY in pillow covers, bank fixed deposits, government schemes. Excellent for the government of India. Terrible for you. You are losing money to inflation.
3. You cannot Postpone consumption: You see a thing, and you want it. Period. It hardly matters whether it is a Rs. 3000 Tee shirt or a Rs. 1,50,000 KTM from Bajaj Auto. Add to this peer pressure, parental pressure, and ease of borrowing – ensures a continuous borrowing to spend syndrome. I am happy to be a shareholder of Hdfc bank. They thrive on you.
4. You and your spouse joint understanding of finance means fighting, because it is like 6 blind men and an elephant. You, your wife, your parents and her parents. So your personal finances are like Humpty Dumpty. Honestly, it will require all the kings horses and kings men to set it right, if at all.
5. You ‘invest’ in things you do not understand: Then come to me and ask ‘Sir I have been INVESTING in this ULIP for the past 7 years, why is the sum accumulated only Rs. 60,300 – when my contribution is Rs. 77,000? Well, well, dear me, you should have asked me BEFORE you invested, right? Just chill. By the way you invested because your wife’s classmate had to meet a life insurance target, right? why call it an investment?
Shivam
Sir,
You had the opportunity of 8% growth, we are having the opportunity of 10 % inflation 🙁 🙁
siddhant
Shivam,
very well put bravo….
vinay
Very nice subra sir. Waiting for part 2
Dhivya
every reason is true….. but
Gold in ur time never had such an appreciation… now its turnin every one run mad behind it.
Rentals were cheaper affordable and correctly fixed…
Now rental rates raises even though there is no infrastructural changes.. and rental in an area increase just because its close to an IT Park ( no single logic other than this !!!)
The other day when I went to enquire a flat for sale.. I was shocked to hear the price.. he was a normal builder… n normal specs in a decent area… When I asked y is the price so high and no where nearthe market price.. he coolly answered that by the time he hand overs this flat it will be in corporation limits… Oh man….
Rental costly.. flat never thinkable…
Buses costly…
Milk costlier..
Vegetables … no less dan 200 Rs spent for a week ( although we get is a nicely fertilised stuff !!! )
N if the woman of the house is working… maid salary is another bigggggg headache.. if she comes high salary, if she doesnt.. real headache!!!!
Fuel costly…
Gas cylinder costly
Electricity cosly…
We pay taxes. we get hurt due to inflation!!!!
never get back anything in return…
A drizzle of rain floods the streets..
Dengue keeps spreading….
Waste being dumped in the open and burnt up…
Traffic woes…
the list is endless…
On the other hand u have people looting money.. visiting tihar.. given an AC jail…..wow kya life hai!!!!
sometimes i feel like running away from india !!!
Sad but true 🙁
Arun
I guess Dhivya, you’re from B’lore and you’ve hit the nail on the head!
Subraji, your post scared the shit out of me. So, how much should a 30 year old individual have in total savings to not be considered poor?
nitin
Exactly Arun !!
How much a 30 year old, worked for 4 years (spent money for 2 yrs on MBA), should have in his Account?
subra
it will surely vary from person to person but assuming you started earning at age 24…over 6 years you should have saved/invested about 5-7 lakhs and your wife should have saved/invested about 4-5L (assuming she is 1-2 years younger to you – or the figure remains the same)…so 7+5=12, should have become 15-16?
Of course if you have earned less, paid off some of your fathers debt, paid for a sister’s wedding, incurred expenses on the house – which theoretically could /should have come from your Dad’s income things would be different.
I know one girl whose dad made a down payment on a HOUSE so that he could FORCE his daughter to buy a house and pay a EMI. Dad made the offer to both the kids – ‘I will make a down payment you have to pay the EMI’ daughter took it, son did not. She is 30 and has a networth of Rs. 35 lakhs and a loan of about 10 lakhs still to be repaid…:-)
Praj
Agreed that the inflation is making life miserable for everyone. But, our salaries have also risen accordingly (It is another thing that we will never be happy with our current salary but thats just psychology!). Our parents started on a salary of Rs. 200 per month whereas we started on Rs. 15000 (considering a decent IT company). I think the solution to most of the financial problems is what Subra has mentioned in the point 3 above. I think that is what our parents excelled at and is the primary reason for them having to lead a comfortable life, financially.
subra
Dhivya
Salaries have gone far ahead of inflation. Your Dad’s salary and yours -compare what %age he was spending on food and what %age u are comparing…item wise. You will know what I mean
G
Subra
Very incisive post as always. I am 31 so this post resonates well with my age group. This is around the time as well a lot of people start thinking about saving sadly so I have had a few conversations with my friends. They are always amazed when I tell them my story.
I was very lucky in some respects to have done an MBA and gotten a good starting salary ( read around 48k in 2005). I somehow blindly invested around 40% of this monthly into sips. The usuall hikes and the onshore deputations were also invested without ‘thought’. The index value did not matter and I soldiered on through feb 2008 as well as dec 2008. I was very lucky since my parents very well off so I did not have to send back even a single rupee.
With an asset allocation strategy, my socked away portfolio is around 70L – this number shocks most of my close friends. True – I don’t own a house yet. Which was postponed because I did not have enough surplus to pay off the emi’s after my monthly sip and my expenses. But hey ho 🙂
Sajith
Well said subra ji…
But one main problem in my opinion is in stability in the job.
You will be well paid for few years, but can be throw out of the company at any stages. in that case getting a new job is very tough if you are more than 9-10 years of experience in the sector. What should we do 🙁
shivam
@ Subra sir,
I am 23 and did a rough estimate of my future estimate of my spending (After retirement). The amount that I am getting is way too high (~ 16 Crores, assuming 10% inflation).
Even after assuming a highly optimistic return rate of 15% , the amount I need to save/invest every month is coming way too high.
So do I need to keep my aspirations lower in my after years or there is some other way out.
I am currently investing about 20k in different SIPs and already have a term insurance.
Arun
@shivam,
Wow! At 23 years, you’re investing 20K a month in SIPs. Way to go! What % of your salary are you saving?
asmi
HDFC bank is coming up with new ideas for promoting consumption. I saw a mobile personal loan vehicle which they claim anyone can stop on the road and avail the loan. Talk about ease of borrowing !
akshat
G, curious to know whether it includes EPF/PPF or just equity/cash ?
subra
total networth of all that you own ….pf, ppf, ulip, shares, nsc,..all together…MINUS borrowings, if any..
G
Akshat,
This is the value of Equity and debt MFs – My core portfolio built through SIPs. Not counting money in bank accounts, some direct equity, EPFs etc. I don’t do PPFs.
I must add a couple of years have included earnings outside India. this has substantially impacted the amount i could plough in as SIP..
Shivam – great to know you are doing 20K at age 23. Believe me, it gets easier over time. Just ensure you systematically invest a healthy amount (30-40% of your income) and compounding and life’s various surprises will see you just fine.
shivam
@ Arun
Around 60%.
Arun
@G
You said to shivam – “Believe me, it gets easier over time.”
How does it get easier with time? I thought the older you get, the more difficult it is, cos you’ll get married and would have to provide for your spouse and kids as well, right?