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?

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35 Responses to “Earning well but poor…part 1”

  1. Who is still hiding/saving money in pillows & banks a/c’s. Everybody is INVESTING in RE.

  2. Arun,

    True – lifestyle changes (wife, child etc.) will impact the amounts you can save. What I really meant is over time the 40% you aim to save will become a lesser burden and will come naturally. Consider a couple of perspectives.

    1. If a 23 year old person saves 20k which is 60% of his salary (around 35k) today – Assuming a 10% hike over the next 10 years (It might pan out less or more) means he will make around 90k per month out of which investing around 40k should still be possible with a wife and a kid.

    2. The other perspective is this – Retirement calculators often make people nervous with recommending a uniform amount that needs to be saved over the next 30 years. It wont pan out like that – Our incomes would increase (hopefully!) and so will our investing power. Consider this – if a person saved 20k per month today – assuming a 15% rate of return over the next 37 years(Shivam’s scenario!) and a nominal 10% increase in amount invested every year would mean a corpus of around 71 Crores. Now this seems much more doable than trying to save 45k every month from now until eternity which will also create a corpus of 71 Crores. This is of course the magic of compounding which has been written to death everywhere 🙂

    Subra – Apologies if I am cluttering your comments board. An excel spreadsheet and some numbers get me very excited 🙂

  3. @G
    My time horizon for retirement is max 35 yrs frm now. Better @ 30

  4. I still have 2 yrs to reach that 30 mark but i can relate to every point you have mentioned here..esp the first two
    As soon as you utter the word shares/stock/mf how many parents has said “‘wasting your money on shares is like betting, juju(a kannada word for betting on horses) so forget it and instead put it in NSC and renew after 6 yrs “

  5. @G

    You say return of 15% , which is possible only if you have an equity portfolio and also talk abt compounding at the same breath, but the point is AFAIK there is no concept of compounding in equity…u buy something at x and sell it at y and hope that y>>>x thats it, correct?

    @subra

    Your figure of 10L scares that hell out of me 🙁 , yes i had to contribute to the family once i started earning and also had to take care of my marriage to some extent but 10L in 5-6 yrs of earning is way off target compared to what i have saved 🙁

  6. People often complain of vegetables being costly…etc etc.

    Have we ever realized that the once we visit a restaurant we spent the entire amount that we spend on vegetables for the entire month?

    People wouldn’t mind spending on costly gym/maid but shy away to walk to go market or do daily chores. We buy unnecessary things, dump in fridge and later throw out and then complain of inflation blah blah….

    The real rich guys I have seen have always been down to earth. I know many rich doctors who travel in a small size decent car although they can afford a bigger. But they would not mind spending on children’s education. On the other hand normal people rather buy bigger cars for boosting self ego and then buy costly educational loan for their children.

    I do know about Financial literacy but isn’t this pure common sense?

    I recall the dialogue from 3 idiots “Meri ghhadi sasti hai lekin time wahi dikhati hai”. Before complaining about all the things should not we retrospect ourselves. Infact are we not what India is today?

    We complain about corruption, but we would not mind fudging the bills or submit a fake rent receipt and then justify ourselves that sub log karte hai 🙂

  7. 4 out of 5 applied to me. Gr8 article Subraji. Eagerly waiting for next part…..

  8. Dear …I dont think these things works…The GOD of all investements in Property >>In Chandigarh we get 25-30 % Return on Investment in a Year …so i think rest all are just talks…If want to earn then invest in property…But wisely ….98825892699938

  9. Hi All,

    For very long duration like 35 years no plan is going to be fool proof. So many things will change, interest rate, inflation, job market and thus the salary increase. That you will get All these will decide your consumption pattern and savings potential. The most important thing for young people is to experience first hand about different investment options. Everyone is unique and thus there is no one size fits all formula. Some people can invest in stocks / mutual fund but some others cannot, they cannot bear the volatility of the stock market and thus buy and sell at the wrong time and then blame the market. Many people like the real estate as there is less volatility and price generally moves in one direction and it also beats inflation in general. I have started investing in 1992 and made all sorts of mistakes in my life. However, today after 20 years I feel satisfied that I had taken some decisions correct and I am financially independent. The only advice I can give to any young person is to start investing at a very early age and invest in various asset class and see how they react to that asset class. That is the only way you learn about the investment options and yourself.

  10. Subraji,

    Well written. just one request whether you can plan the finance for us . IF yes what will be your fees and what you will do for this. With Regards,

    Pankaj R.Borole

  11. most people reading this blog,really dont care about food inflation.as someone mentioned earlier,eating out once a month = vegetables/fruits budget for entire month in many cases.so while people whine,what they are really worried about is being priced out of aspirational things like housing,and education for children

  12. “We complain about corruption, but we would not mind fudging the bills or submit a fake rent receipt and then justify ourselves that sub log karte hai ”

    i think it is heroic to disobey unjust rules.a fake rent receipt exists because the tax exemption laws are not realistic.the legislators have not caught up with reality,so the citizens have adjusted their so called morals.

  13. Subra,

    Good article, but not every BE grad earns a starting salary of INR 40k, likewise not every MBA grad starts off with a INR 12L package. I know BE grads who are earning 50k after 5-6 yrs of experience, and MBA grads who have just managed to earn a respectable salary after 4-5 yrs in the industry.

    To that extent, their savings are less and expectations too are relatively tempered.While i agree that one can save and invest aggressively in the first 6-8 years of career, not everyone will be able to reach the corpus you mentioned, primarily because not all sectors pay equally

  14. So, this one really scared me. I am a 30 year old from Mumbai and started working since June 2007. I started investing since the very first working month in SIP’s and have a portfolio of about 13L today. I have always managed to invest about 40% of my monthly salary into SIP’s.

    Frankly, I haven’t withdrawn any money from my investments but for the major part of my working life my MF investments haven’t yielded great returns. But I am being patient, taking Subra’s advise and continue to review my MF portfolio once a year and continue my SIP’s every month.

    I am unmarried yet but do plan to marry sometime later this year.

    I thought I was doing well until this post came in… SCARY!

  15. It is very wrong to come up with a number like this – every person’s situation is different. But the good thing about the post is your reasons. They are true for everyone, and there are some very good lessons for everyone there.

  16. You really had to go and mention that KTM bike, didnt you? 🙁

    Ok, i’ll go for that Benelli or UM bike, or even a Triumph instead 😛

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