To Invest you need to save!!
Investing is difficult not because investing is a great science or a great art form, but the money to invest has to come from savings.
Many people live beyond their means and are thus not in a possession to build up any savings. No savings clearly means that there is no money available for investing. If you do not invest, there is no corpus being built. Now imagine a guy with a ctc of Rs. 18L – and at the age of say 30 years (this is not a bad salary at all, right?) not being able to save even one rupee?
I had done a similar story about this guy in 2011…he is still around, still a bachelor, supports his family…but has no savings. He will NEVER, ever be able to buy a house – forget building a corpus for retirement. He still has hope though – he could still marry rich 🙂 . If she brings in some dowry or a nice fat salary…then ‘they’ could retire..on his own this guy is doomed.
‘I earn Rs. 18L CTC – and clearly I am overpaid. However I am not able to save a rupee – I have no idea where my money goes’
Can you believe this…if you are a middle class Indian?
I found it a little amusing…but not difficult to believe. When I spoke to him, I just heard some of his expenses – Rs. 3000 for a gift for a colleague’s wedding, EMI on a car, and EMI on a motorcycle. Rented house – supporting his parents so paying Rs. 23,000 as rent.
These were too adhoc, so I did not want to be judgmental. So I asked him to maintain accounts for at least a couple of months before I could comment….and here are the expenses:
| take home | 108000 | |
| misc | 33000 | household |
| emi car | 16000 | |
| emi bike | 7500 | |
| petrol | 7500 | |
| investing | 7000 | 80C |
| Personal exp | 6000 | |
| rent | 23000 | |
| medicines | 8000 | |
i was not as stunned to see this. This guy is about 33 years of age – works as an accountant – and as he himself admits, he is well paid. He is still a bachelor, says he is not a big spender – and has ZERO savings – except for some mutual funds (80C), nsc, and ppf.
I said my life style is very different, cannot comment on yours.
However readers are welcome to comment. He reads my blog….:-)
bhushan
My God. 16000 for Car EMI. What car is he driving? That miscellaneous Amount of 33000 is also not clear. Clearly these monthly expenses are too much and too vague.
Medicines of 8000/month. Dont want to be judgemental but this is too much for a 33 yr old guy. Not in terms of money but what is his health condition that he has to pay 8000/month for medical bills. He should take care of his health or in another 5 years it could be 80000/ month.
VK
Wow! That seems excess of unnecessary expenses. Personally, I’d never go with 16k for car emi (no matter what % it forms of my take home). To me a humble hatchback is the best and from past experience and knowledge, I wouldn’t look beyond honda or toyota.
Bike loan is a big NO-NO for me – if I can’t buy it with cash, I would not buy it at all.
If I was single had din’t have family living with me, I’d either be living with 4-5 roommates to split the cost, or be living in a paying-guest accomodation sort of thing. If I did have to keep some family with me, I’d pick an apartment with lower rent (a little off the main rds. work best – that’s what I am doing currently).
The “misc” expenses seems like a big bad black box. I’d chop it down to identify the biggest drains. If some family was living with me, I’d taking my home-packed-lunch to office.
Nazir
1. Is the car needed? It may depend a lot on his and his parents health condition, his commute. If he commutes less and he works in office for long time he could rather think of selling the car.
2. A bike of EMI 7.5k will not be lasting long unless he went for HD. So if he is comfortable living bike, as i mentioned earlier he can plan to close the EMI by dumping the car.
People tend to buy bike first. He is 33 but he bought bike much later (may be after car) that means he is concerned about petrol. that also means car is just a want. We need more info here.
3. It is not clear which city he is in or how many dependents are staying with. Based on this he can choose to live in small house and thus save more in rent. (Here in Bangalore 23k for a family of 4 is big for middle class family)
4. House hold expense (33K – that means dependents are staying with him. If not String.reverse(“dog”) can’t help. He will still be able to reduce the expense here if he is able to note down all the expense for couple of months and then able to separate wants and needs.
5. He spends 8k for medicine (I would assume it is for his dependents). So it may be serious. In that sense does he have emergency corpus? What if the person needed 8k/month is seriously ill? what if overpaid job is lost… and there are lot of what ifs…
6. And you said he is accountant… How come?
Abhijit
I was in the same situation few years back (only that I wasen’t overpaid as per the industry standards). I was bachelor, had no Loan except student loan (EMI 5k per month) and had take home salary of around 23k but could not figure out where all the salary went every month!!!
Result: No savings for first 6 valuable earning years (big opportunity loss and compounding loss).
Then I got an idea on Subra Sir’s blog to think “What if my employer cuts my salary by 10% tomorrow?”. Will I die of starvation? Will my bills be pending? Will I stop going to hotels/movies? Of course not. Even with 10% drop in my take home income, I could have managed everything.
So from the same month, I started two SIP’s of 1k each in a Large cap and a Mid cap mutual fund (which are still running from last 3 years) and gradually increased the percentage of saving (actually investing – I don’t save in FD’s) from 10% to around 20% today (plan to increase it further to 33% till home loan EMI lasts).
So, anyone who is unable to save, there is really no reason I think. They just need to start NOW!!!
shinu
my simple way breaking my expenses was, is and will be… it worked for me, it may work for others…
1For the Provider 10% charity, orphanages, give aways, faith
2For your Tomorrow 30% Invest in Knowledge, Equity, FD, Land…
3For your Yesterday 30% Support Parents, EMI’s, Rent
4For your Today 30% Food, Clothing, Insurance, Medical, Child
have a great day 🙂
Jayaraman
Income – Expenditure = Savings.
He needs to look this equation differently. Income – Savings = Expenditure. He needs to commit 20 – 30% of his income in savings.Over a period of time, this will be come an habit. He needs to start and to START NOW…..
subra
yes 8k is parents medical….car emi is a function of how much money and how long….yes big car and longer loan too…
Babu
Dear Sir,
Advise is no use. He being an accountant, he is well aware of the expenditure and will have his on justifications for the expenses. He himself has to make alterations in his life style based on real situation.
subra
yes Babu right on. His boss, the MD asked me whether i will do a lecture on how to live within his means….I said what is not known can be taught. What is not done cannot be taught…
Karthikraja K
He can justify his needs but not wants.
Also he might be thinking about uncertain moment of life and ” Live the Moment” kind of guy ( i guess most of the younger generation falls under category). It is better Govt/company takes care of investing process by deducting appropriately before disbursing to employee. More PF, More Medical and Term insurance deduction, extend coverage for the total family.
Just an thought if Financial literacy harder than Programming.
kalyan
Living within means is the answer. It might sound harsh but nobody deserves anything. For the expense profile and for the money he is earning, he should not own a car, should not spend that much on personal expenses when petrol and household expenses are already taken care of. That itself will get around 25K per month for him. (save car emi, petrol, personal expenses and add some expenses for cabs etc for his parents to move around, he will have his bike to travel).
If he can downgrade a further 4,5K on home, he will have nice surplus to invest. Assuming he doesn’t scale up his life style with every pay hike, by the time he is 40 there will be decent savings.
Dont want to be judgemental but still most of expenses doesnt make sense. 33K household expenses seems to be high for 2 senior citigens and a bachelor. Atleast in Bangalore it should not be that high.
Jai
Rs.7500 on petrol…. My god…. Is he drinking it instead of water?
Harjeev Singh Chadha
I read a book a long while back and it’s basic lesson goes what’s already mentioned in the above comments. Setting aside a MINIMUM of 10 percent of one’s income.
The name of the book is “The Richest Man In Babylon”
The change has to come from within and for a 33 year old bachelor these expenses shouldn’t be allowed and is a big No No, in my opinion. This guy needs to change from inside only then will the real change start.
PS I don’t see any insurance premium on this. I hope he’s not short-changing himself. A basic term insurance is absolutely essential.
Shankar
Here’s my thoughts :
Pre-requisites: This person need to really understand and want to save himself from financial disaster.
1) Insurance:
Since he is supporting parents with rent, household and medicines. Get adequate term life insurance (else who will support your parents ?) and medical insurance for parents and self (think no salary, but huge medical bill)
2) Investment: (Pay yourself first)
Since he realizes he is over-paid, just take 30% of his income and do SIP in any index fund and ELSS(for tax). If required, assume salary cut.
3) All others will fall in place: IT’S THAT SIMPLE.
How? If only you have 60+ K at your hand, what will you do?
Closely monitor the blackbox household expense of 33K (without rent,medicine,emi,personal exp,petrol) what else is there? Food + Clothing + household should NOT be this big. Something is terribly wrong here.
You will automatically find ways to reduce personal exp, petrol , EMI and rent. Really, only that person knows how to do it, no one else can unless they have all the data.
So my conclusion is protect yourself and pay yourself first.
Sansvk
Happy to see no home loan emi.
venkat
Never go to mall.we spend more on items we don’t need.buy it from your local grocery.use Volvo bus if in Bangalore for commute.walk the 1 mile instead of two wheelwr /car for short distances.attitude matters.
Kishore
I am not that surprised. He saves 6.4% of his take home for his 80C. I know lot of people saving lesser than this percentage of their income.
Arun
Dear Sir,
I am in the same situation. I am married. However, my breakup is like the one below,
1st House EMI (where my parents stay) : 36363.36
2nd House EMI : 16000. It fetches Rs.5000/month as rent, which my parents use for household expenses.
Rent for my house : 16000
House hold expenses, commuting & travel to native : 15000
ELSS, PPF, term life insurance : 12500
Once in a while expense (Sister’s wedding etc.,) : 10000
I don’t know if my home loan EMIs can be included in savings. If so I am a good saver. If not, I am not. I am not planning to buy anymore RE. But the current 2 houses are taking away most of my cash flow.
Andrew John
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