Most of us have only a vague idea of our OWN balance sheet…but we have a reasonably good idea of our friend’s balance sheet!

The shiny new car in our friends house looks so alluring. We need to buy it, after all he is like us. Or is he?

Is he really like you? Do you really know him that well? Do you know HIS balance sheet or are you trying to guess?

I know a 38 year old who has a dividend income almost equal to his salary income (including bonuses, net of tax). Not too many people know that – NOT EVEN HIS WIFE. So if a colleague of his tries to match this man’s occasional splurges (his expenses are about 30% of his salary!!, and has no borrowings, so no EMI). So if he does take an European vacation or gets a new car – the world does not know that he is paying for it outright and has ZERO interest expenses.

Most people do not know :

1. How much they earn and how much they spend

2. How much they can save, how much they are saving, and how much they can invest.

3. How much they are insured for and how much is the premium paid (whether they have Endowment plans, they do not know)

However most of them will want to buy things far beyond their ability. They have no clue about their OWN financial position, so how will they know the financial position of their friends?

Do they know whether the ‘gorgeous’ things were a gift from their parents? Or that they had some equity shares which turned a mutli bagger?

I have friends who spent upwards of a Crore on their daughter’s weddings…hey these are guys with multi crore portfolios. If guys with portfolios in lakhs try to emulate the really rich guys, it will HURT and hurt really bad.

the IMAGE, in most cases, is not the REALITY that we assume about others. I know of a couple (in debt for their house) who have 2 daughters – one in a job and one studying. They take expensive vacations, buy insanely expensive things and have no savings or investments (except for some gold jewellery!!). I have never inventorised their investments, but I have a fair inkling of what they have. I am not saying that I want to influence their lifestyles, but just wondering whether they understand their priorities.

Sigh. life is not so simple. Mathematically or Accounting wise.

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  1. quote :
    dividend income almost equal to his salary income (including bonuses, net of tax)


    Can you do a post on how to realistically achieve this?
    By realistically I mean, no inheritance, no super-duper-mega-ultra-baggers which suddenly started giving dividends; a portfolio worth 1 crore will have approx 2 lac as dividend income [2 % yield]; also, not all the stocks will be good dividend payers.

    Thanks to you/Pattu, we at least “bloomed” to SIP, otherwise would be stuck with Endowment policies + FD.
    So how do we late bloomers go about achieving this passive income?

  2. lot of morons who spend hours talking about debt to equity, Free cash flow, Interest coverage, liquidity ratio of stocks first need to check those ratios for their personal finances.

    Q: the IMAGE, in most cases, is not the REALITY that we assume about others. –

    A: Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.

    Q: Sigh. life is not so simple. Mathematically or Accounting wise. –

    Life is really simple, but we insist on making it complicated – Confucius

  3. I agree with above comment…
    Life is simple… we complicate it…
    When someone says something very simple.. I always doubt it and look for a catch..
    When its complicated.. I assume it probably makes sense … as if it were that simple.. everyone would follow it…
    But i guess its just hard being simple…

  4. Good read.
    “What others think” – is the Trap we fall
    “Lets show off” – is the bait for others
    both makes life complex
    otherwise it is simple.

    “Pattu will counter argue on Life with respect to Mathematics” – LOL

  5. Who is guilty?

    People are under the impression that having a new car,house, foreign trip are symbols or wealth. I have seen so many of my friends follow this pattern? Is it my job to educate them that i earn 3 times what they earn and my expenses are 20% of my earnings? When and if a i buy a BMW it would be because i can financially afford it. If my friend emulates this and takes car loan to buy his BWM whose fault is it?

    Now with that big a loan his life style changes, he no longer is willing to spend on that weekend getaway we used to do before we both bought cars. Now i need to look for another friend who doesnt have a loan and can afford a weekend trip. Should i have bought that car?

  6. I was blessed enough to be placed in a good company from a top 10 MBA institute of India about 6 years back. The fact that 2 years of job later, I bought a ‘Only a Hyundai i-10’ sent some of my Delhi friends wondering out aloud why this car when people half my income buy a car twice as costly. 🙂

  7. @ranjan, raised very pertinent point, you have. I observed something similar about 10 years ago, we were in a small rental house for a couple of years and had booked a house elsewhere. One evening, a couple of months before we shifted to our own house, my wife’s friend asked her where exactly had we booked the flat. Till then, obviously, we had not advertised that we had booked a house and so on…the matter came up because we started making plans of actually shifting.

    Lo and behold, when her friends came to know the actual location of the flat, considered to be a ‘posh’ area by them…a couple of them got so flustered (jealous?) that they completely stopped speaking to her! Yes, we were shifting and not going to be their neighbors anymore, but in effect, she lost two friends because of purchasing a house!

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