Every normal Economic Man should aim at the following:

  • Maximize earning
  • Minimize expenses
  • Minimize legal taxes
  • Improve health
  • Maximize wealth post tax

Are these assumptions correct? or am I being foolish?

Well these assumptions are correct, but I do meet people who do not think so. Some of their arguments are different. Let me tell you some exceptions?

  • One man with 1 big house in which he is living and 2 other houses given on rent. Rental income? Rs. 4L a month. Other income? Interest from bank fixed deposits – Rs. 2L a month. Full tax paid – 80C goes to PPF – and balance after expenses goes to bank FD/RD. Rd on maturity becomes FD. Lives well, travels J class even on international flights.

Suggested remedy: Shift bank fd to a combination of debt and equity schemes. Take growth option – and pay less tax.

Reaction: My only son is very rich – he is a well paid (over paid acc to the father) consultant in a big US branded management consultant firm. By Indian standards indecent salary of US $ 1.5 million. Nobody needs my money.

My reading: He is too young to think that he has enough money, EVEN if it is poorly managed. He is not ready for long periods of unoccupancy of 2 rental flats. He is just 64 – and could live till he is 95!! He needs to create a portfolio of rental properties, debt funds, equity oriented balanced funds, AND reduce dependence on 2 tenants. Risk is too high. He is emotional that his son (obviously, only) is not dependent on him for his ‘self created wealth’…

  • Another story of a man with very small corpus (NOW) – and only in bank fixed deposits. Sadly for him he thought he had a LOT OF MONEY when he retired in 1999 with a corpus of Rs. 1.25 crores in provident fund, and bank deposits. He also saw a point in time when he was getting 12-14% interest on this corpus. Paid taxes on all of that…and now he is wondering whether his corpus of Rs. 89L will pull him through retirement.

My view: He spent some  money on lifestyle expenses – car, driver, vacations, etc. without worrying (or even better planning) for longevity of the corpus. He should have had a portion for indulging, a portion beating inflation (equity), tax free bonds paying about 9% – these were available in 2014 also. Money HAS to be managed well – the size of the corpus does not matter. Remember, he retired at 54years of age – and now he is ONLY 72 years of age and his wife 63 years of age.

The third case is of an over-educated scientist who can write a book on investing, but sadly does not have enough money for retirement. His portfolio has all the alphas, the sharpe ratio, etc. but he did not put enough money in equities. He has/had invested in 30+ schemes. Large cap, mid cap, multi cap, …many types of debt funds, but somehow did not save enough and also got the asset allocation wrong for long parts of his investing life. He has no pension, has all the knowledge of how to manage a portfolio, just not enough money in HIS OWN portfolio.

 

 

 

 

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  1. Thanks Subra,

    Some of the stories are scary. However, they make you think.

    There are many such cases around us. Since in our society people don’t talk about their own money, it’s difficult to see them.

    One of my relatives retired with Rs. 45 lacs corpus from a no-pension job. Of this, he gave Rs. 15 lacs to elder son to buy a flat and Rs. 2 lacs for a car. His younger son is in college. Definitely he will become dependent on his children after 10-15 years.

  2. Subra sir,
    Thanks for highlighting the stories.
    I think anyone in 1999 would think a corpus of 1.25 crores is enough to do anything in retired life! invested correctly it would have been for sure!

    I feel the “need/market” has moved on from merely saving to investing prudently.
    But most people/parents who have enjoyed low expenses and high interest on FDs have not be able to move on to investing.

    To the stories above, i would like to add one:

    My Uncle (Fufa ji) retired at 60…is now 82 lives independently with his wife and unmarried son (50, doesnt work, totally dependent)
    but my Uncle invested all his money in Equities, MFs since before retiring. Now he has an emergency FD and an amazing dividend/tax free income from MFs.
    Travels 4-5 times a year for leisure, lives frugally, will leave a good corpus for the son.

    His story has been one of the key factors that gave me confidence in keep going on in the SIP route.

  3. Being wealthy is not a bad thing. I’m in the workforce for only 6 years and I always strive to find ways to earn and make money work for me.

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