A few weeks ago, in response to our article, “My salary is low, is financial independence an impossible dream for me?”, reader and contributor Anand Vaidya pointed out, “those with low incomes are often more irresponsible with money and expenses. I can share two examples” So we invited him to do so along with lessons we can learn from such financial mismanagement.
About the author: Anand studied E&C Engg, worked at Wipro and then left for a job in Singapore. He started his own IT consultancy in Singapore. After 15 years, he returned to India in 2011 and continued the same IT services co. Anands’ previous articles:
- How I used RBI Retail Direct to buy govt. bonds and create an income source
- My journey: From Rs. 30 bank balance to financial independence.
He forced himself to retire in 2022 and is now planning to focus on other interests in life (Travelling, Gardening, reading books, investing etc.) Now over to Anand.
AIFW members have heard only the ‘good news. From Shri Ashal Jauhari, Shri Pattabiraman Murari and many other senior members. What is that message?
- Work hard, save, and Invest for your future.
- Increase your income.
- Have a financial plan. Review and finetune.
- Stay loyal to the plan.
- If you don’t have the skills, work with a Fee-only-Financial-Planner.
Do all this, and they say you will achieve your goals and live a pleasant life and carefree retirement. Or something pretty close to that. They motivate and cajole you. Sometimes ‘sarcasm’ you into doing the right things. e.g., thinking of risk before returns. Keeping you at a safe distance from Ponzi schemes and poor return/risky products by the entire group voting NO to your bad ‘investment gem’ idea.
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OK, what does the other side look like if this is the right side? Let us consider a few examples I have encountered. I have seen many, but if I remove the unfortunate illiterate people and consider only well-educated folks, this is how they stay in poor financial condition.
If you sense anger and resentment in this article, the reason is that we care for them. We (me and wife) wish they live well, now and in future. We have advised them multiple times. offered assistance, painted disaster scenarios and warned them, but they just refused our advice each time, saying we “overthink”. Even COVID could not shake them out of their stupor!
Example One: I have known this family since the ’90s. Let’s identify Husband as H, Wife as W, and their son as S. H and W have been working in private companies drawing decent middle-class salaries. Since S is an adult (unmarried) now, he works too. All three are graduates. My estimate of the family income is around 1 lakh/month. H and W are almost at retirement age (nearing 60).
Assets after 35+ years of twin incomes:
– H, PF balance about 10L. Nothing else
– W: FD of 6L* (soon 2L)
– W: Gold, probably around 100-200gms (inherited from parents)
– 600 sqft loan-free house worth Rs 30L (can’t be sold since they need a home to live in)
– Some ancient 2-wheelers (two of them nearing scrap value). No car, AC etc
– Insurance: None.
– Emergency corpus: Nil
What are the problems?
The retirement corpus is just 16L! When I point out that this amount is peanuts even today and insufficient in future, they think they can manage with Rs 10K/mo. But even that low expenses are unachievable with bank/post office FD.s (6-6.8% RoI).
* W plans to spend Rs 4L from her 6L balance for S’s wedding. And S himself is contributing nothing. The retirement corpus will be just 12L next year!
Their entire monthly income is spent every month (unwisely, as per me)
Someone has fed them the fake news that the “soon” government will start distributing Rs 10,000 per person, and they believe it will happen soon!
H and W have health issues. They rely on tablets and painkillers to postpone the necessary dental/surgical solution. Reversing diabetes and hypertension is a laughable idea for them. They won’t even try changing their lifestyle (no exercise, low-quality junk food, random meal times, uncontrolled stress, random sleep hours etc.).
Because they did not curtail mingling with people, All of them were infected with Covid19 in 2021 (Omicron). W suffered worse than the men. They were in denial that they had been infected – did not visit doctors, and managed with self-medication with Dolo650 (dangerous).
No medical insurance or medical emergency funds. When will something worsen and need a large medical expense? The consistent reply? “we will admit to the (terrible, free) government hospital or not take any treatment at all.”
House needs repairs. It has been left unattended. The men don’t even bother to look at the leakages. The house, furniture and fittings are exactly in the same state as when constructed in the early 90s. No improvements or upgrades.
Around the middle of the month, their SB balances are zero, and they have to wait for the next salary to start buying groceries. (Yes, this is real and scary, hard to believe. Aisa Bhi Hota Hai)
Their Solution? I often hear the following statements…
“God will protect us”. (hope as a strategy)
“So many people are in our situation, and they are all fine. You are blowing things out of proportion when there is no problem” (denial)
“We will see when there is a serious problem. God has always helped us.”
“We will be given Rs 10K/month by the gov, so it should be OK. We can manage retirement.”
“We will not take expensive treatment but prefer to either live with it or die.”
“You don’t know, with our meagre income, it is not possible to save” (1Lakh/mo combined)
My observations: The family lacks discipline in most aspects.
The men folk spend time in trivial fun things with their friends after office. They come home as late as 12mn. Besides having fun with friends, they won’t fix a leaking tap or change a spoilt lightbulb at home.
The discussions at home are always about movies, drama, this and that and NEVER about wealth, financials, health, improving the living environment etc.
Expenses and Income are not recorded. There is no plan for any improvement, savings or investments. House has been in decay since they bought it in the 90s.
From day one of their marriage, H has always maintained his income a secret from his wife. He’d give about 30-40% of the income for running the home; the rest is unaccounted for. W fills in the shortfall but has no idea about H’s income and expenses.
W runs the family but, due to frustration, tends to spend on impulse (clothes, shoes, jewellery, short travels etc.).
W sells existing gold and buys new jewellery, only to exchange it after a few years. Note that the jeweller deducts 2% gold value, levies making charges of about 20%, govt takes GST at 3%. These are permanent losses (even ignoring gold price variations). 2-3 such sell-buy cycles and the amount of gold will go below 50% of the original grammage.
W has also lost cash and gold jewellery a few times, lowering the already meagre assets. She withdrew a ULIP when it was in a loss (haste)
S tends to hide income and expenses from the parents. Buys expensive gadgets such as iPhones and musical instruments, clothes from online platforms, has hidden spending etc.
And their recent “investments”?
- Dogecoin! (2021) I have no idea how that is doing.
- W Invested a small lumpsum in equity MF via an agent – the amount was split into three bluechip MF schemes. The agent has promised 30% returns (‘assured’). ( They don’t like me when I say MF returns are neither assured nor in the 30% range, but a reasonable range is 8-9%, which too not guaranteed). None of them can understand their account statement!
Since 2011, I have been harassing them to plan for retirement, start saving (at least in FD), create an emergency fund and discuss family finances between H and W. Still, all my effort was wasted since neither was interested. (They’d rather spend a Sunday watching a movie and having a late dinner at a hotel). I have given up.
Example-Two: Husband, Wife and two sons, S1 and S2. H2 and W2 in their late 40’s or early 50’s. Both H2 & W2 are teachers with a Master’s degree. Stressful work. H2 earns extra by moonlighting. Their combined income is probably more than 1 lakh/month
Assets, as far as I know:
– Apartment, loan EMI still being paid (run-down condition)
– Cash/Investments about 9L in a liquid fund (partly exhausted by now)
– Minimal bank FD or other instruments
– Insurance: None. Not sure whether they have any other insurance (eg, via employers)
H2 suffered a heart attack pre-covid days. Friends and relatives collected money for treatment. It was not returned.
The family travelled without reason during the 2020 peak Covid19, and all of them were infected. Luckily nothing serious happened (so that is attributed to God). Re-infected again and again with Covid19 due to mingling with people unnecessarily. (2021)
The younger son S2 is not so keen on academics. The elder son S1 was performing well academically. But he has made his own set of mistakes:
- Choosing an engineering degree for education. Appeared for too many entrance tests, which is a waste of money.
- JEE, KCET (Karnataka) – did not score well for placement in the top 5 institutions. Registered for SAT-USA (didn’t take the test – no passport), VIT, PESSAT, COMEDK etc
- Refused to accept merit seat allocated in KCET, but chose expensive paid Engg seat. (Total bill around 8-10Lakh)
- Instead of focusing on education, launched a social-media marketing ‘startup’ and got lower CGPAs.
- Low CGPA affected the entry requirements for job interviews. Also, he could not qualify for many of the Coding tests during the interviews due to distracted attention.
- Finally, he landed an internship and job offer at a CTC much lower than his potential.
- He forced his family to move out of the owned (rundown) house to a posh rental apartment. (Not for any need, but to project status)
- Also, he forced his parents to take a loan and buy an SUV after selling their old car. (Not for any need, but to project status)
The outflow of monthly rent, home loan EMI, and car EMI is too much for a family with middle-class finances. Their own home is being used as an office for S1’s startup (there are other partners). So the family can’t shift back to their own home to cut expenses.
Now, H2 and W2 are stuck with an expensive rental apartment, an SUV EMI, and a home loan EMI!
– The son is planning to buy a car for himself with a bank loan in the name of his parents (since he is not eligible for a loan yet)
– He claims he will run his startup in the evening and attend the office during the day. I doubt whether this is sustainable. A person needs to rest, after all!
The funny thing is, they wanted to meet me and understand personal finance, work out an investment plan and spend half a day with us. But on the appointment date, they went to a luxury hotel for lunch with someone else. That is their commitment level! We stopped providing any advice to them.
I hope these two real-world examples demonstrate how educated people ruin their lives with reckless, indisciplined behaviours. I suspect these are common examples in real life.
My learnings:
- Discipline is the first and foremost requirement for building wealth and managing finances and time effectively
- Have fear. Of financial difficulties. Insufficient income later in life. Of health problems. Plan and Prepare.
- Start one’s career with above average income. Focus on increasing income. It starts with education. Field of education, good grades, preparation for interviews etc. matter.
- Have firm control over expenses. Avoid unplanned, unnecessary expenses. Don’t spend/go shopping because you are under stress. Soon you will end up in distress.
- Feeling stressed? Seek help. Take a walk. Sit and break down the stressful topic into bite-sized chunks and handle the chunks.
- Learn. I can’t emphasize it enough. I have shared freefincal PDFs, but none of them bothered even to read ( https://freefincal.com/ebooks/ )
- Seek professional help if you can’t manage money. List of Fee-only Financial Planners in India (SEBI RIAs)
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About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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