I was talking about frugality to a guy whose knowledge of English does not include this word. Here he was all 29 years of age, not a penny saved, married to a woman who was spending most of her income.

Earnings of this couple was in the region of Rs. 20 lakhs per annum and they had life time savings of Rs. 5 lakhs. That too saved in safe instruments like government securities, endowment policies, etc – which meant it was not growing in real terms. Welcome, USA, so what if we cannot come to you, we have brought you here, fully packaged.

The lady was in the process of buying a I Phone and had set apart about Rs. 55000 for the same. I do not judge people at all on how they spend, but I was amused when she said:

“Sir it is nice to be frugal, BUT at this stage of our life, WE CAN AFFORD IT”.

That really got my goat!

Here was a couple who ASSUMED THAT their salary will ALWAYS grow at a rate GREATER than inflation. They were seeing stagnating salaries in Europe, youth unemployment all over the world, and pathetic REAL yields on all asset classes. They were just committing themselves to a house that was 7 times their GROSS salary and about 30 times their current ANNUAL savings. There was no saving grace of being able to save rent, as that house was to be ready only in a couple of years.

Amazing that a couple which was about to sign up to a life of voluntary slavery for the NEXT 30 years for sure, saying

we can afford it. If it is something that we enjoy, what is the harm in indulging in it

Sure, but in the same breath do NOT tell me ‘I want to start off on my own’ or ‘I wish I were financially free’.

Frankly I do not see this couple being financially free till they are in the 60s.

I shudder to think what will happen to them if she gets pregnant and has to quit her job.

I hate to think that one of the parents will step in to pay the EMI. OMG will Indian parents cut the umbilical chord when the kids are 40 at least?

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  1. So how do you see it ending for our society in general ? 20-30 years from now when these people with zero savings start retiring, we’ll have major issues; probably like in the US where everyone’s retirement plan was to sell the house since real estate never goes down.

    I feel that this ‘salary will keep increasing’ mindset is a remnant of an era where people went into government jobs and by and large it was true.

  2. Is there a rule of thumb for the kind of house you should ideally buy? How many year’s savings/gross salary should you plan for while buying a house?

  3. no rule of thumb, but if you are in a private sector job ….and a single income, you are better off if you can buy a house with about 50% down payment. I know people who make a 10% down payment and buy a house. It is also a function of will your parents or inlaws step in and pay the EMI/ loan amount if things were to go wrong….

  4. ^^ i am sure you are joking. spending doesnt make the economy grow -that line of thinking is keynesian dogma.only investment does. spending is consumption ie using up capital .ie not caring about future consumption aka prefering to ‘live for today’. it is a decivilizing force

  5. Indians want to live american life by sucking their parents dry financially and physically . Once that happens they’ll send them to retirement homes . High time for parents to realize do not sacrifice your entire life for children .

  6. Mira D:

    Please spend on Gillette, ITC, Colgate, Tata Motors,…..etc. at least I know my dividends are protected 🙂

    Pravin: Keynes is not the only economist whose theories cannot be copied blindly.

  7. subra please throw some light on “keynes the investor” i hav heard somewhere that he was a brilliant investor…….!!!

  8. ^^ never mind jason zweig’s fawning article.the fact remains that keynes was the ultimate insider trader.he advocated dollar devaluation to FDR and once convinced that FDR was going to do it,loaded up on gold mining stocks.he went bust 3 times.he was a good trader especially because he was an insider. keynes and his ideas are as bad as his character which prompted him to write in the preface to the german edition of his ‘general theory’ that keynesian ideas are best suited for a totalitarian society.
    i can understand why politicians love him -it is because his advice to them is “spend,print and spend if necessary”

  9. The couple has committed to a house worth of 7 years of gross salary. It means couple has put in around 2 years of gross salary as downpayment. Not bad at age of 30. I certainly did not have that much of saving at age 30.
    I think the couple is saving decent percentage of their salary. For example, I can see couple is saving around (7 / 30) * 100 = 23.3 % of gross salary.
    Anyways, you have to pay atleast 80 L for a house. That couple committed to 140 L for house which is big amount but not extraordinary.

  10. I did similar calculation like Sanjay with 15 % downpayment for 140 lac which is 21 lacs which this couple paid which at 29 years of age is damn good comparing my situation where at 13 lac gross still I cant manage this much of savings.

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