Some Tough Personal Finance Related Questions

Here are few tough questions directly or indirectly to personal finance, that I have encountered. I do not propose answers but only wish to point out certain neglected aspects that must be considered before a decision is made.

Let us start with a familiar question:

Should I rent or buy?

The answer is simple only if,

rent+ tax benefits = emi+tax benefits.

Which is seldom the case.

Children who have lived in rent since birth would long for a house they can call their own. You cannot factor that as an Excel input.

If the spouse bugs you about a bigger house, you cannot talk about financial logic at the cost of breaking the relationship.

In a buy-vs-rent calculator, there are multiple inputs but only one that calls the shots: the rate at which property prices increase.

If you buy a home as early as possible, the emi will eat into into your retirement planning, if your income does not increase higher than the home loan rate and/or inflation.

If pre-paying a home loan is your number priority, irrespective of the size of your emi, your retirement planning will again take a hit.

Most people do not factor in retirement planning while buying and/or attempting to pre-pay a home loan. For the simple reason that it too far into the future.

What is the solution? If emotions rule the roost, logic will have to take a back-seat.

This is what I would do: start investing for investing retirement first and ensure it is not affected by your home loan. Let the home loan run its course, pre-pay in chunks.

When should we have a child?

One might dismiss such a question as 'personal' and not related to 'personal finance'. I am not too sure of that.

Having a child immediately after marriage when the couple is not earning enough is not a good idea. A newborn brings with it expenses both good and bad.

Waiting for income to stabilize before having a baby can be terribly expensive too.  Which is what transpired in our case.  Pregnancy, especially the first time is time-sensitive. When the man and woman age, their ability to produce a child goes down. Especially for those with sedentary lifestyles.

Which is why fertility clinics are doing booming business. We spent quite a bit of money before my wife became pregnant. In fact, I almost lost her due to a complication. Assisted pregnancy techniques are not cheap. It could cost a few lakhs to just get a baby. The risk of multiple pregnancies is higher (we insisted that only two embryos be used instead of three!).

All these will have a significant impact on finances both immediately and in future.

From my experience, I would suggest having a kid as soon as you are mature enough to understand the basis of what it takes to be a parent (it is said that the woman becomes a parent, the day she conceives and the man becomes a parent only when the child is delivered!). Easier said than done though (see next question).

This is way more tougher than the rent vs. buy question although in our setup the in-laws trivialize the matter and suggest having a family asap. Even if not financially ready, the couple must be mentally ready to understand and adapt to parenting.

Which bring us to the next question:

Should a parent quit working after the birth of a child?

Parenting is a full-time job and most parents do not understand what it takes.  Both my parents worked. So my vote is yes.  One parent should not work full-time for at least a few years after the child is born.

When I wrote about this recently, I was criticized for my primitive views. I was told that society interprets such a stand in only one way: the women should quit her job. 

This is a dangerously dark area.  There is no free lunch. If the couple keep working, it will have an impact on the child's psyche (trust me on this).  

Some couples get a joint home loan and find out that it not possible to service the loan on single income after they become parents.

Some parents claim that it is important to balance parenting with a career and leave the child in the care of the in-laws (completely unmindful of the toll it could take in the evening of their lives).

Day-care is a terribly mixed blessing. 

This is no easy decision. If one parent does not work, it could impact finances. Perhaps the couple could never afford a home or perhaps the child may be forced to get an education loan for college.

If both parents work, it would influence the child's mental makeup (in a positive or negative way). Parents will have lesser control over the kind of resources that the child is exposed to.

Finally, the award for the darkest question goes to:

Should we have a second child?

If the couple decides to have a second child,

they would need to provide for its education and perhaps marriage. This implies one will need to invest more.

Will this impact retirement planning is a question that they will have to ask.

Will they be able to provide equally for both children? If there is a second child in the picture, will it affect the educational aspirations of the first child (or the second child)?

Meaning, will the couple be able to provide the necessary investment amount? Would this mean both of them will have to work? (back to the previous question!)

they better write a will!

If the couple decide to not have a second child,

they will need to be sensitive about the emotional framework of a single child. Single children more often than not tend to be loners, but are often fiercely individualistic (trust me on this: am a single child and have a single child!)

the couple need to be financial independent and must provide for means by which they do not depend on their child (emotionally and physically) in the evening of their lives.

even if the couple do not wish to impose on their child, the child could choose to bear the burden of taking care of them in old age.  That is one burden without respite.

the child may grow up with no support system. Blood is thicker than water. When the going gets tough, support from siblings is invaluable.

One last question which I recently encountered

What if my partner is not financially compatible?

The primary reason my financial life is in reasonable order is because of my spouse. She is as frugal as I am. We think 10 times before we make big ticket purchases.  Financial compatibility makes a lot of difference. However, one cannot plan for it, whether we marry out of love or by arrangement.

It is down to sheer dumb luck. There is more to a spouse than financial compatibility!

An understanding couple will adjust and meet half-way ... hopefully!

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57 thoughts on “Some Tough Personal Finance Related Questions

  1. Bharani

    These are fantastic. Excellent entry (I loved that "Blood is thicker than water"!). For the last question on compatibility, I don't think this is a darker one, because keeping emotions aside, it should always work by spouses talking to each other, perhaps over a period of time, rather than at one sitting, when emotions may take over.

    Reply
  2. Bharani

    These are fantastic. Excellent entry (I loved that "Blood is thicker than water"!). For the last question on compatibility, I don't think this is a darker one, because keeping emotions aside, it should always work by spouses talking to each other, perhaps over a period of time, rather than at one sitting, when emotions may take over.

    Reply
  3. Aparna

    Excellent Article...I have gone through each of these dilemmas and agree that these are the questions that cannot be answered independently..each decision has some impact on others that you have mentioned.

    Reply
  4. Aparna

    Excellent Article...I have gone through each of these dilemmas and agree that these are the questions that cannot be answered independently..each decision has some impact on others that you have mentioned.

    Reply
  5. Praveen Thomas

    good post pattu sir!

    As you said, first pregnancy should be as early as possible, complications are more if the mother is near 35 yrs for first pregnancy.

    One more advantage of having early child, is that before you retire you can "settle" the child financially, sometimes maritally also!

    When the parents are no more, a single child will be left alone, but emotional support from sibling greatly helps.

    I completely agree with all your views....

    Reply
  6. Praveen Thomas

    good post pattu sir!

    As you said, first pregnancy should be as early as possible, complications are more if the mother is near 35 yrs for first pregnancy.

    One more advantage of having early child, is that before you retire you can "settle" the child financially, sometimes maritally also!

    When the parents are no more, a single child will be left alone, but emotional support from sibling greatly helps.

    I completely agree with all your views....

    Reply
  7. Anand

    This is quite honest and forthright! Appreciate your sharing it.

    On the lighter note (and from my personal experience), having such angles to think upon, at-least provides some respite to the enormous implications (both emotional and financial) to such tough questions. That itself leads to clarity of thought 😉

    Reply
  8. Anand

    This is quite honest and forthright! Appreciate your sharing it.

    On the lighter note (and from my personal experience), having such angles to think upon, at-least provides some respite to the enormous implications (both emotional and financial) to such tough questions. That itself leads to clarity of thought 😉

    Reply
  9. Ranganath Go

    A nice article. I have been recently hearing of instances where women are focusing too much on their work life and are facing real difficulties in conceiving at a later age (and running around fertility hospitals). Adding to this few companies have come up with plans to freezing women eggs (what an option! 🙁 , more n more mechanical life). Fantastic line sir "blood is thicker than water". The scenario would be even difficult when the kid is born little late and during his 25+ years age he need to take of his parent and then his own kids without much support from sibbling to share things (to make it even more hard spouse working?). Your posts have always been a great learning

    Reply
  10. Ranganath Go

    A nice article. I have been recently hearing of instances where women are focusing too much on their work life and are facing real difficulties in conceiving at a later age (and running around fertility hospitals). Adding to this few companies have come up with plans to freezing women eggs (what an option! 🙁 , more n more mechanical life). Fantastic line sir "blood is thicker than water". The scenario would be even difficult when the kid is born little late and during his 25+ years age he need to take of his parent and then his own kids without much support from sibbling to share things (to make it even more hard spouse working?). Your posts have always been a great learning

    Reply
  11. sundararajan

    Honest and good questions. I would like to add my 2 cents.
    If anyone plans to have a 2nd child, do it within 2/3 years of the first one. It is easier to grow 2 kids together (i know it is not easy) than having a 2nd child after 8/10 years (which we did and reinventing the wheel is very difficult). You have to start from scratch if you do after a long gap. The first one is already grown and 2nd is just starting, it is very difficult to pay attention to either one. But for kids 2 kids are always better. fyi, after 6 years of 2nd child, now both kids are playing together (at least for some time now)
    Now come to financial side. As some one said, my first one may be financially and martially ready when we are young (ie 50s), but for 2nd one, we may be in late 60s. Everything will be expensive in India , one has to make and save lot more for education , marriage etc.

    Reply
  12. sundararajan

    Honest and good questions. I would like to add my 2 cents.
    If anyone plans to have a 2nd child, do it within 2/3 years of the first one. It is easier to grow 2 kids together (i know it is not easy) than having a 2nd child after 8/10 years (which we did and reinventing the wheel is very difficult). You have to start from scratch if you do after a long gap. The first one is already grown and 2nd is just starting, it is very difficult to pay attention to either one. But for kids 2 kids are always better. fyi, after 6 years of 2nd child, now both kids are playing together (at least for some time now)
    Now come to financial side. As some one said, my first one may be financially and martially ready when we are young (ie 50s), but for 2nd one, we may be in late 60s. Everything will be expensive in India , one has to make and save lot more for education , marriage etc.

    Reply
  13. Deep

    Great post.One solution to all these issues could be higher age gap (8-12 years) between man and woman.This means the marriage starts with the woman entering peak fertility and the man at stable career and already some assets.Today i feel the marriage age gap is narrowest it has ever been in India due to a variety of reasons.My previous generations had large age gaps and inspite of only 1 earning member my father was able to raise 3 children comfortably.This also means there would be larger parental coverage for children.When my father died none of us were maritally settled,but my mother took the family leadership and facilitated crucial decision making.This arrangement ensures that parental income and leadership is available for a longer duration as well as young children receive the care they need.This is a personal opinion and i am really sorry if this point of view has hurt anybody.Today i find conservatives like me in minority and often derided for our opinions.

    Reply
    1. sundararajan

      I agree and I am also one of that conservatives. My father died when i was not even out of college. My mother managed the family and did marry my sister and guide me to get through the education and in life. ( But now my mother is completely against US in spite of she is living with us - but that is totally different story).
      But I did study only in govt funded schools / colleges , so I have to pay only exam fees nothing else. Now I pay more than Rs 50k for my kids school fees etc per year. These are just local schools (similar to the ones that I went) and not any high end schools.
      If the age difference is higher like you said, one have to plan additional 8/10 years retirement income for spouse considering no pensions.

      Reply
    2. Bharani

      That's a good view point, but the problem is that having narrow age gap is considered progressive in today's world (read US-style culture!), where same kind of mindset trumps other considerations.
      My personal view is while 8-10 age gap may address financial situation, divide in mindset can contribute to more problems than the lesser gap situation.

      Reply
  14. Chokkaraman Kandasamy

    I have a question. I have a house and the tenant stays for more than 10 years. Every year we prepare new agreement for the rent. What precautionary measure I should take lest the tenant create problem in later days

    Reply
  15. Ashish

    Deep,
    Very well written response. I totally agree with your view points. Conservatives like us are minority now but time will come, we will be in majority. Life is a circle and it will end where we started. Tomorrow's generation will realise and take the right direction.

    Thank you pattu sir, enlightening post from you. Have to save it for future reading as well.

    Reply
  16. Indus Boy

    Pattu Sir,

    These are indeed tough questions. Here is my take:

    We have replaced (at least urban, educated upper middle class) our traditional lifestyle for a "modern/western" lifestyle. And we don't know how to deal with this new situations without a precedent. We are in search of role models.

    How early/late should we marry? OR Should we marry at all? What is the purpose of marriage?
    What do we do with educated, empowered women - who refuse to be typecast into traditional roles and rightly so.
    If we marry, should we have kids? If yes, how many? What do we get out kids?
    Should one partner take a break from work? Why should it have to be the woman/man always?

    We obviously can't put the modernity genie back in the bottle, so the question is how can we deal with these questions? Should we look at books - again written by westerners for their societies? Should we seek help from life coached/counselors/elders/gurus?

    I am afraid more questions than answers.

    Reply

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