Most people I know spend less than what they earn! I wish I could say ALL people I know spend less than what they earn…well they do not.

Why do I keep harping on income and expenditure, because it is not easy for many people to comprehend. Let me see how simple I can make it:

Income < Expenditure         – you will run into debt

Income = Expenditure        – risk that you have no fall back in case of a temporary income stoppage

Income > Expenditure        – you have money to save and perhaps invest

This is class 4 math is it not?

However too many people do not understand this because all income is not cash flow, and all cash flow is not evenly spread out! Oops jargon did you say? sorry.

Let us take the case of even a salaried person – who has a quarterly bonus. First of all from the so called ‘cost to company’ there are deductions like provident fund, profession tax, income tax, etc. Also some ‘reimbursements’ like medical, LTA etc are done once or two times a year – and is not regular. So your MONTHLY take home may be different from your CTC/12.

Similarly when you are spending you may be spending some lump sum – school fees paid in advance for 2 quarters, expenses at festivals, vacations, etc.

all this makes ‘matching cash flows’ a little complicated.

It is necessary to spend much less than what you earn – so that you save up and invest it. Remember no great wealth was created by penny pinching – you have to ensure that there is enough moolah coming home in the first place. Of the money that comes in, you need to spend LESS so that there is a surplus that can be saved (to get out of debt, fast) and then invest the money in ‘ownership assets’ like equities and equity mutual funds….

I hope I am clear…many people are accusing me of not being simple enough…is this fine?

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  1. Yes SUbra,

    What are the avenues for this moolah to bring in. Given your vast training exp and the deficiency in skilled pools in India. What are the skill sets to be inculcated in the new gen pool.

    Would like to have your views on this.


  2. I do not think that it is skill-set problem. I think it is simply supply-demand problem in job market.
    I don’t think there is much change in last generation to current generation. Current generation is having better paying jobs because MNCs have setup offices in India to lower the cost. Current generation is not anymore dumber or smarter than last generation. It is just that jobs are plentiful.
    Just 10 years back, fresh graduates were happy to get a job. Now they are keen on salary levels also.

  3. By the way, I truly agree with title of the blog. Older generation people keep advising young generation that penny pinching is way to richness.
    Somebody has to tell this to parents of current generation. 🙂

  4. Subra,

    The message is quite clear.
    I am not sure it will be acted on though.
    The young generation needs quick results. Everything bad about western culture is liked, including food habits, dress and also consumption culture. I had to wait for 3 years after marriage to buy my house and another 5 years to buy my first car, a second hand Fiat.
    Now a days everyone wants instant gratification. There is little thought given to affordability. Loans are available very easy. I feel we are forgetting the Indian way of being conservative in expenditure. I guess, parents have to start inculcating good habits in their kids at an early age.

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