[clevermax]

@vasoo: Good point. I didn't think much on the NRK factor increasing the land prices. It is a fact indeed. some real estate / apartment guys are only marketing in the Gulf / USA region.

@vivek: Yes the 'asset rich' 'cash poor' people are in abundance in our country.

[ampere]

Originally Posted by vasoo

Coming back to the OT, I am living on the edge, big time. 80% of my salaries are paid to EMIs. And I dont think any bank seriously check this aspect when they sanction new loans.

Here the understanding is that one should have payed off the loan by the
half life period. This for me is just a thumb rule.

For example: if you have a 50L loan, for 20 years, you should plan to pack it off by 10 It sounds shocking but that is how one can gain the benefit
of a loan and also end up not paying heavy interest.

Few things that one does account:

- Increase in salaries (All the increase is used for other expenses)
- Additional Bonuses
- Stocks and Stock Options.

Any floating income that you muster should directly go to close this loan.
Many times in companies that provide stock options, folks in order to
maximize the return, keep selling small-small portions.

Since its not a big piece, they keep spending this amount into less important expenses and hence cannot do any fore-closures.

The idea is to keep doing part principle re-payment once in 2-3 years to
bring the principle down. One can systematically work on this as well. Also one needs to see that one does not end up paying any foreclosure penalty

Loan schemes can worked to that effect.

[pramodkumar]

Originally Posted by ampere

Here the understanding is that one should have payed off the loan by the
half life period. This for me is just a thumb rule.

For example: if you have a 50L loan, for 20 years, you should plan to pack it off by 10 It sounds shocking but that is how one can gain the benefit
of a loan and also end up not paying heavy interest.

Few things that one does account:

- Increase in salaries (All the increase is used for other expenses)
- Additional Bonuses
- Stocks and Stock Options.

Any floating income that you muster should directly go to close this loan.
Many times in companies that provide stock options, folks in order to
maximize the return, keep selling small-small portions.

Since its not a big piece, they keep spending this amount into less important expenses and hence cannot do any fore-closures.

The idea is to keep doing part principle re-payment once in 2-3 years to
bring the principle down. One can systematically work on this as well. Also one needs to see that one does not end up paying any foreclosure penalty

Loan schemes can worked to that effect.

I will tell you a small story maybe then you might understand your idea is too live "asset rich cash poor", My parents migrated to delhi in the 1970s, they got married in 1980 and i was born in 81, at the time of my birth all my dad had was a govt job, in fact he recieved his first salary on the day i was born, immediately after i was born, they had difficulties meeting their need as one earniong member has to stay home, and by default it was mom. By the time i was school ready my parents were already in the rat race, when i was about age when i started observing by parents. they were so involved in what they did that, they could not imagine any thing out of their daily routine. My mom used to work monday till saterday, dad used to work monday till friday. For dad saterday and sunday was TV day no matter what and for mom sunday was the houseold day, the first movie that i and my sister saw in a theater was koyala in 1997, this was only because they had no time for anything, our occational evening walks used to be very much alike walk till cannaught place iccreams for both of us and then come home and watch TV. What was their problem, they were in the rat race, and cannot get out of it their whole life. They had decent assets in their home town and had every luxury a middle class family could dream about but their lifes were mechanical. So what did i learn from them, Live your life, but i am finding problems like where to draw the line.

So one can never say i take a 20 year loan and work my level best to finish it off in 10 years, by the time you do this you are already ready for your next loan. The cycle works this way, anyhow this is my personal experience and i am sure others may have similar stories to tell.

Its always better as clever said to have a solid foundation and then build your assets on it, and doing that doesent mean you live a poor life. This thread was started by me to confess my current situation and see what others are doing and so far i have successfully learned a lot of things.


Pramod

[aargee]

@Pramod - I got your point on your Dad & Mom & I also agree with you & Clever (infact my principle too) to build a solid foundation & then build assets on it. But Ampere too has a point, see these are my learnings from his post. That's a little risk that one should be taking & how much of risk is dependant on each individual as how he/she has been brought up. Me being little conservative & have lot of traditional thoughts like to take less risk & risk only when I've built something solid. For example, buy for anything only when it is 100% necessary & at the same time, avoid borrowing money as much as possible.

- Increase in salaries (All the increase is used for other expenses)
- Additional Bonuses
- Stocks and Stock Options

The one marked in bold, you know how true it is & that's the reason none of us are satisfied with whatever income we make. Though our income has gone, say atleast 2-5 folds, in last 10 years & so are our needs.

I don't know how much your parents made, but I would appreciate them. I assume they probably made very less & henceforth looked deep into your future & probably converted lots of needs to luxury.

Trust me, the best way to cut down expense is to convert need into luxury & the time to convert luxury to need is when you have all the money to buy & maintain it. Land or vehicle, asset or liability, appreciation or depreciation, my policy always has been - if you can afford it, then buy it. Never beg, borrow or steal to make one.

Sometimes borrowing is good (appreciating assets), but then one need to understand it fully to utilize its potential; one should never take a plunge seeing success of others & that would be a blind fall.

[ampere]

Pramod,

What I mentioned was just an example. The point I am trying to make is to follow a similar thumb rule if you take a loan, but not at cost of loosing your liquidity. I never meant that.

Liquidity is of paramount importance. Some small calculated risks may be taken, on a case by case basis.

[neon_daytona]

May be off topic. Someone in the thread wanted to know how to keep a tab on the monthly expenses and see where you can save.

I used an excel sheet early in my career for about 6 months. Once I new where I could save I have stopped using it. But its a good tool to start with. Just 10 minutes a day for few months and you know how much you earn and how much you spend and where is the opportunity to save.

The link to the excel
http://amrita.sunilmanwani.com/others/Kharcha-Pani.xls

I did not know if attaching the excel sheet from some other website was ok.

Mods, please upload the excel sheet if its OK to do so, so that we dont have to rely on the above link

[carboy]

I have spent a lot of money on useless stuff in my life & not given up on much, but there are some rules, I always try to follow

- Never take a loan for anything except your house. I broke this rule once when I had to buy a car in the US. I had just gone to the US, I absolutely needed the car & had no money. I didn't want to buy a used car either because I didn't have much experience with cars & it was also a new country - so didn't want to get stuck.

- Analyze every expenditure to see if you can it cheaper without sacrificing much. I do this even for small expenditure like medicines - I do not always buy the same brand prescribed by doctor if a cheaper substitute with the same chemical constituents & dosage is available. This saves 50% or more on medication cost most of the time. There are websites which tell you about all brands & generics for any brand name capsule or chemical name you type in. I had done this even before the internet era. Once my wife was prescribed very expesive medication to be taken for 3 months - overall costing around Rs. 7500 at that time. I was earning much lesser at that time, so this was a significant expenditure. Went to a medical shop & asked the guy to get his medicine book - all chemists have a book which tells them all brands for a particular medication & their cost. Found out the cheapest one which the shop stocked. The cost for the same medicine came down from 7500 to 5000.
I was able to reduce my car insurance cost in the US by half & get better coverage on a lot of things, by studying the US insurance system extensively & doing an extensive analysis on how to chose the right deductibles, what kind of coverage is unneccessary etc - If any of our US T-Bhpians need my analysis, you can PM me - a lot of the analysis is common knowledge but may be missed by many people.
Currently, I am trying to analyse how to save maintenance expenditure on my car to the stuff which is actually required & helps - so you would see a lot of questions on T-BHP from me.

- Never buy the latest electronic fad. Prices go down like crazy in a few years & you don't end up paying the early adopter tax. I still don't see a need for a LCD TV at my house even though the prices have already crashed. For regular broadcasts on a 32" TV, a CRT has better quality than a LCD any day - the holy grail for LCD as far as regular broadcast is concerned is to get to CRT quality. We don't had much HD broadcast in India yet. We still use DVD & not Bluray. So I don't see a need for a LCD yet & my CRT is just 5 years old & doing well. YMMV.

I do all this because of 2 reasons
- I absolutely don't want to work till 60 or whatever. I absolutely need to retire from serious work by 50 (45 would be even better) & lead a similiar life as I am leading today.
- It's fun saving money without sacrificing :-)

[DCEite]

Well put, carboy.
To add something that just crossed my mind..

I see a lot of people who are penny wise but pond foolish. For example, a lot of bachlors in my circle(who normally earn upwards of 40-50k per month) would commute on bikes to save costs, some even prefer rickety autos to commute to work, then there are some who live on sharing basis in small rooms, and even some examples who delay marriage till they get to 30 so that they save enough. But guess what? Most of these people do NOT have any financial plan, most of their savings go in to the savings bank account or worse still, lured by miss-selling by Agents they buy ridiculous financial products which have high cost structure and mostly duds.

In the end, these people would be less richer than a person say who lives not so much like these misers but does not go overboard spending either, BUT has a solid financial and savings plan.

So, in my view, its not really a question of spending more and saving less. Irs about spending intelligently and SAVING even more intelligently.

[clevermax]

Though it may sound OT, I have a question: If one has some money to invest for the future, what is the best option he has, other than real estate?

The option should have minimum risk as well as minimum attention needed during the period of investment.

[carboy]

Originally Posted by DCEite

Most of these people do NOT have any financial plan, most of their savings go in to the savings bank account or worse still, lured by miss-selling by Agents they buy ridiculous financial products which have high cost structure and mostly duds.

This is one of my pet peeves - expensive financial products.
- ULIPs & whole life insurance - this isn't a good product for most people.
Do not mix investment & insurance. There is no need to do so for most people - keep both separate. Agents get upto 40% commision on your first year premiums in ULIPs, whole life insurance. So guess what that 40% of your first year premium never gets invested for you! Other than that there is no cap on expense ratio in ULIP funds, whereas there is a cap on expensive ratios in regular mutual funds.

- Figure out if you do need life insurance. The need can be figured out by thinking about what would happen if you die tommorow. Is your family's life going to be affected heavily in a financial sense - buy life insurance only if it is going to be. For some people this isn't the case.

- If you figure out that you do need life insurance, then buy term life insurance, they are far far cheaper. You don't get money back unless you die, but the money back is just a trick in whole life insurance. Subract the difference between the term life & whole insurance premiums - invest the difference in a mutual fund every year - I am pretty sure your investment will be worth more than what money back you get from the whole life insurance.
In life insurance, you are betting against the insurance company. The insurance company wins if you live long - you win if you die early. In other words, you never win. So find a good term life policy & don't think of profiting from insurance.

Originally Posted by clevermax

Though it may sound OT, I have a question: If one has some money to invest for the future, what is the best option he has, other than real estate?

The option should have minimum risk as well as minimum attention needed during the period of investment.

This is a million dollar question :-) If there was clear answer to this, then there wouldn't be thousands of financial products competing against each other in the market.

In the US, I would say that the best option is put your money in a Vanguard Index funds, but India doesn't have good index funds as of today - there are few, none of them are as good as Vanguard. The day Vanguard comes to India, I will park half my money into a few Vanguard Index funds.

I don't have any concrete answer to your question, but just some starting points.

- Figure out how much emergency expendure you would need for 3 odd months - assuming there is a huge medical expense, assuming you lose your job & can't get a job for a few months. Keep this money aside in a liquid mutual debt fund or a short term fixed deposit.
- Real estate is a good investment, but don't put all your eggs in one basket. Real estate can also crash.
- The remaining you have to decide a ratio for it. When you are 25 years old, you have a ratio like 75% in equity & 25% in debt. This ratio would keep changing as you grow older. When you are 60, you should have atleast 75% in debt & 25% in equity. After 60, if you suddenly need money, you can't wait for the market to bounce back!! the ratio will keep changing between 75-25 to 25-75 as you age from 25 to 60 - these are just indicative figures - you have to figure out your own ratios.
- In my opinion, one always has invest in equity(either though stocks or indirectly through mutual funds) because inflation rate is always higher than FD interest.
- If you are new to the maket don't get into the market when it's really hot - unfortunately, this when most people get into the market for the first time.
- Buy a copy of Benjamin Graham's "The Intelligent Investor" - read it 3 times before you try your hand at picking stocks.

[aargee]

@Clevermax - Depends on how much you have, how much you can invest, how much you're willing to risk & how much you're willing for paying tax as everything has got its own pros & cons. From the investment perspective, here're few things that I can think of other than real estate - Stock(MF/Bond or anything respect to market), Gold, Post office, Bank FD

Adding to Carboy's insurance premiums, if one looks at the premium that is collected, that is the amount of money invested in share market versus the money that is paid as premium for 3 years. The amount invested in market is peanuts; they say 18% 1st year, 16% second year & 8% thereafter. So its like 42% of my money is gone direct to them & they play with remaining of my 58% money invested in market.

@Carboy - Sorry to say that I would do this

I was able to reduce my car insurance cost in the US by half & get better coverage on a lot of things, by studying the US insurance system extensively & doing an extensive analysis on how to chose the right deductibles, what kind of coverage is unneccessary etc

But will certainly not question much with health on the following

Went to a medical shop & asked the guy to get his medicine book - all chemists have a book which tells them all brands for a particular medication & their cost. Found out the cheapest one which the shop stocked. The cost for the same medicine came down from 7500 to 5000

Reason? If a Doctor prescribes a medicine, they know what my body accepts with less side effects & if I opt for cheaper alternatives that is at the cost of my health. And again, if the same medicine is prescribed second time, then I would explain the Doctor on my poor financial position, but certainly not experiementing myself.

Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like

Very beautiful, very true. IMO, this is more than sufficient for someone to live humble in life.

[carboy]

Originally Posted by aargee

@Carboy - Sorry to say that I would do this

But will certainly not question much with health on the following

Reason? If a Doctor prescribes a medicine, they know what my body accepts with less side effects & if I opt for cheaper alternatives that is at the cost of my health. And again, if the same medicine is prescribed second time, then I would explain the Doctor on my poor financial position, but certainly not experiementing myself.

I think you have misunderstood me. I don't change the medication, I just change the brand. The underlying medication is the same. The side effects wouldn't vary between the different brands.

Just take a simple example of Allegra 120 made by Aventis - it's a very well known brand - so they charge around Rs. 100 for 10 tabs.
Allegra 120 contains the chemical Fexofenadine of strength 120 mg.
Dabur which is reputed company on it's own makes the same medicine called Allernex which sells at around Rs. 40 for 10 tabs.

Check something simple like Imodium. There are various other brands like Roko, Eldoper, L-Doper, Lopamide which are identical in every way but cost a fraction of Imodium.

However, I just used medication as an example of how you can save money by analysing. I wouldn't recommend everyone do this unless they are confident. When I buy a different brand, I ask the chemist for the original brand also & compare every piece of writing on the two to figure out if any of the ingredeints or dosage is different.
I started doing this because the first time I had to shell out the Rs. 7500 I stated in my earlier post, I was really really short of money & I wanted to save money. From then it became a habit & now I do it for most of my medications. Many a time, I check with the doctor also when he writes the prescription & I already know the other brand name because of an earlier use.

There is a social worker in the North of India who has devoted his life to this. He started with one small town. He established a co-operative medical shop. This shop figures out the cheapest good generic for every medication & stocks it. This shop is a huge success because all the poor people shop here - they get the same medication for a fraction of the cost. The social worker is now replicating this model in many towns in the North.

In the US, many hospitals have a prescription form which has a tick mark for "Substitute with generics - Yes/No" & the doctor typically ticks yes. So when you take the prescription to the pharmacy, the pharmacist takes the drug name prescribed by the doctor & finds his own cheaper generic & dispenses that to the patient. Unfortunately, the pharmacist doesn't substitute with the cheapest generic - he just gives you the generic which is bulk ordered by his pharmacy chain. It would still be much cheaper - 50% of the brand name drug, but there would be other 25% cost generics available at a Costco or a SamsClub pharmacy.

[mobike008]

Originally Posted by Jaguar

So in the context of this thread, what % of up-front payment for a house would be considered safe? 50%?

Yes. If you can afford, 50% or higher would be the most safest bet for an upfront when buying a house as this would be the largest loan for any individual.

To give an example of what i did :-

I purchased a 3-Bedroom Apartment for Rs.25 Lakhs ( Value for which now is Rs.60 Lakhs) in 2005. I shelled down 10 Lakhs as downpayment which was my savings and some borrowed from mom.

Took a loan of Rs.15 Lakhs at 7.6% fixed rate and i pay Rs.12,176 as EMI for a 20-year tenure.

I now regret that i should have borrowed a bit more internally and taken a lower loan amount.

Since we all know that interest that we pay for a home loan is through the roof and as 5 years are almost nearing completion. I plan to clear entire loan amount in next 5 years maximum.

Hence, i will be saving 50% on interest payable.

[ampere]

Originally Posted by mobike008

Took a loan of Rs.15 Lakhs at 7.6% fixed rate and i pay Rs.12,176 as EMI for a 20-year tenure.

I now regret that i should have borrowed a bit more internally and taken a lower loan amount.

Since we all know that interest that we pay for a home loan is through the roof and as 5 years are almost nearing completion. I plan to clear entire loan amount in next 5 years maximum.

Hence, i will be saving 50% on interest payable.

This is the exact point I am trying to make. In young age, if you are earning well and need not support others, you will have a higher risk appetite. Hence by the time you settle in life, you might already cleared quite a big chunk of your loan.

But this insight is dawned on the individual only when the water has flown. In the first 5-10 years of employed life,
folks do not have any savings ideology. Forget savings, many dont even know about an LIC/Pension policy.
(I may be exaggerating, but its quite true).

[aargee]

Originally Posted by ampere

Forget savings, many dont even know about an LIC/Pension policy.
(I may be exaggerating, but its quite true).

Yes you're very true; I don't know (and wish not to know) anything on pension policies as I like to handle the money by myself rather than handing it over to someone who will provide me peanuts after 20 years!!!