[SoumenD]

WOW!!! What a thread. Awesome insights everyone.

Went through all 31 pages and kept wondering why didn't I get to see this earlier. Would have been in a much better situation now had I seen this atleast 5 years back.

I happened to check my home-loan statement last weekend and turned out I have already paid 11L just as interest on a 24.5 L loan(tenure 15 years), in last 6 years. Last year for first time I did some pre-payment(around 25%) but still as per the forecast I have to pay another 8L as interest if I stick to the entire tenure.

Damn I have been living on the edge for 10 years, without even realizing

[V.Narayan]

Gentlemen, some unasked for advice - that's what folks my age love doing!. If you are young enough, ie below 45, then start putting some money down each year into a pension fund with some life insurance of your choice. One day like me you will approach retirement age and starting 10 years before that is usually too late. The returns are average but the discipline forces you to save into a pool you normally cannot touch and which on maturity converts into a monthly annuity income for life. All life insurers have it. It is the best thing my wife and I did. Today at 58 all but two of our pension schemes have converted to monthly annuity which we will receive till either of us is alive and after that the principal will go to our kids. The backward planning was such that even if either lived to 90 the monthly pension would, after adjusting for inflation, ensure a reasonable life style that we are used to and no dependence on any one else.

Second piece of uncalled for advice is to take out the most comprehensive health cover you can on your own dime today when you are young and all your spare parts are functioning. Even if you have medical cover from your employer take it out and let it get renewed each year. One day you won't have employer health cover and then at 60 the health insurance will be prohibitively expense to take out for the first time and several health items will be carved out if they feel you are at risk. Take it out for your family as a group - mixing the young with the old helps the statistics. We did this many years ago and it has served us well and as the track record for the family as a whole has been healthy the old in the family also get covered.

Just my two paisa.

[blacksport]

Why are people so serious? In India, if I look around, I only see people who earn and save. Buy property, buy gold, invest in FD but won't buy a decent meal for themselves. Saving is good, but saving all you earn and crib that they do not get paid enough - that's what they all do.

It's good to save, but you should also start eating some day. Say, you could live up to 80 years max, you should at least quit the save mode at 40 and start eating whatever you saved. We are busy saving for ourselves, our children and grand children, automatically assuming that they would all grow up to be nalayaks who can't earn for themselves.

[Nav-i-gator]

Originally Posted by blacksport

Why are people so serious?
It's good to save, but you should also start eating some day.

This is a typical dilemma. Whether to save for the rainy day, or enjoy the sunshine. Both ways, nothing is too much, no amount of saving seems to be enough for a secured future, and no amount of spending makes us feel content with our present lives. There is no perfect balance! And we end up living a frustrated life.

[locusjag]

My dad hailed from a poor family and he helped settle the entire family (multiple sisters' marriages etc.) and he put me and my sister through our respective colleges. He did it twice for me actually. But in doing so, he over-saved and when he retired, a long-standing wish was for him to drive a car. It was too late. Cut-throat traffic in Chennai was vexing for me, a 28 year old new driver, when we bought our first car in 2011. But as a 60 year old, he just couldn't. He gave up in bitterness.
My friend told me - there's an age for doing everything. Beyond that time, it just won't click.

[A M]

Originally Posted by blacksport

Why are people so serious? In India, if I look around, I only see people who earn and save. Buy property, buy gold, invest in FD but won't buy a decent meal for themselves. Saving is good, but saving all you earn and crib that they do not get paid enough - that's what they all do.

It's good to save, but you should also start eating some day. Say, you could live up to 80 years max, you should at least quit the save mode at 40 and start eating whatever you saved. We are busy saving for ourselves, our children and grand children, automatically assuming that they would all grow up to be nalayaks who can't earn for themselves.

Maybe I can answer your question.

In India, there is no social security provided by the Govt. and neither is there any healthcare coverage. What do you do in the hour of need? Your own savings come to rescue. While there is an age to enjoy everything, there is also an age to build a support system around yourself which, as advised by Narayan sir, should be done while the sun shines. The highly paid professionals in India today can still think of enjoying while saving and building the support system for retirement, it was very different a few decades ago when our parents were in their earning years as the income levels were low. They passed on the advice to their kids and that is what reflects in our actions today.

[pramodkumar]

I cant believe a thread I started years ago has touched so many of us .

Pramod

[blacksport]

Originally Posted by A M

Maybe I can answer your question.

In India, there is no social security provided by the Govt. and neither is there any healthcare coverage. What do you do in the hour of need? Your own savings come to rescue. While there is an age to enjoy everything, there is also an age to build a support system around yourself which, as advised by Narayan sir, should be done while the sun shines. The highly paid professionals in India today can still think of enjoying while saving and building the support system for retirement, it was very different a few decades ago when our parents were in their earning years as the income levels were low. They passed on the advice to their kids and that is what reflects in our actions today.

India is actually an inexpensive place to live in. Food, housing and healthcare are no luxuries when compared to countries where social security is provided by the government. Imagine being out of job for a year in the USA vs the same in India. Spare change will get you through in India, while even social security payouts in the USA will be unable to sustain you.

I agree that we all should be saving for an unknown tomorrow. But when does that tomorrow come? Have you seen anybody who, at some point, have decided that he has saved enough and started spending from his savings? My 75 year old father still sends most of his pension to his savings.

Is that how we want to live? Earn for future generations and leave?

[Biraj]

Originally Posted by V.Narayan

Gentlemen, some unasked for advice
----
Just my two paisa.

Very pertinent advice. I will just add to it that one should take the best possible term-insurance and health-insurance that one can afford at that point in time, even if it means stretching a bit. We so often see members here stretching their budget to buy a better car or TV or even a phone but most people take an insurance policy based on how much tax they can save and if the home loan principal saves enough tax then the insurance takes a back seat.

----------------

Just want to share my personal experience. I used to be a typical corporate warrior like most others in my age group and demographics. Working 12-14 hours a day, taking calls at odd hours, travelling frequently and earning rewards of it. I had a pretty successful corporate tenure, i.e. earning more than my needs and being able to save a bit despite eating out almost every weekend and also a vacation every 3-4 months. I thought my stock options, gratuity and savings will be enough to manage my post-retirement years.

Few days after my 31st birthday, I suffered a renal failure. Within a few months, I was put on dialysis. While the dialysis expenses were managed by the group health insurance provided by the office. There were tests, injections and OPD visits that were not and it piled up to a huge expense. After almost a year under dialysis, I started suffering from brain-fog and couldn't work or concentrate on anything. I took a sabbatical of almost six months and finally underwent a renal transplant as that was the only option listed by my Nephrologist. Again, only part of the expenses in the renal transplant was covered by the insurance and I had to foot the rest of the bill. Luckily, I had enough savings to get through this period of sabbatical and transplant.

I had taken a term-insurance before my disease but only of a small amount as I had taken it to save a minor amount of tax and the same goes for my personal health insurance. Today, I can afford a large premium and want to take a better policy but no company will insure me. Once a disease like this strikes, we are no longer eligible for any type of insurance policy so, all we have is our savings to rely upon. So, please take the best possible term-insurance (for your family) and health-insurance (for you as well as the family). The future is unpredictable but it's better to be prepared for it. I have mentioned some other learnings I had with the disease in my travelogue. If interested, you may read it here.

[Hayek]

Originally Posted by V.Narayan

If you are young enough, ie below 45, then start putting some money down each year into a pension fund with some life insurance of your choice. The returns are average but the discipline forces you to save into a pool you normally cannot touch and which on maturity converts into a monthly annuity income for life.

Second piece of uncalled for advice is to take out the most comprehensive health cover you can on your own dime today when you are young and all your spare parts are functioning.

Originally Posted by Biraj

Very pertinent advice. I will just add to it that one should take the best possible term-insurance and health-insurance that one can afford at that point in time, even if it means stretching a bit.
Few days after my 31st birthday, I suffered a renal failure. Within a few months, I was put on dialysis.

Great posts, Narayan Sir and Biraj. May be its a function of having been born in a Middle Class family in the early 1970s, but I get stunned by the spend, spend, spend attitude of the younger generation today. I must say that for the first 3 years of my career, I spent a large chunk of my Base Salary even though I lived with my parents. But I still managed to deposit the maximum permissible limit (I think it was ₹ 60000 then or about 4 months base salary) and also invest a bit in equities - I was always very clear that PPF must be paid out of base comp and the entire bonus must be saved.

Once I got married, I was willing to spend my entire base to rent an apartment close to work - but my wife’s entire comp and my bonuses (which could be as much as base in a good year) was to be saved. Two years later, I booked an apartment - renting may make much more economic sense given low rental yields in India, but buying one house is a great reason for forced saving (always take a term insurance to repay your home loan of course).

Of course, God has been kind, and I today earn much more than I ever imagined earning. And in my mid 40s, I am more willing to live and spend on stuff I like. But I would certainly aim to save at least 50% of my post tax salary through my working life.

What should one do with one’s savings? As they say, equity is the best way to grow long term savings - but especially at the tail end of long bull markets like the one we are living through, people often forget that with return comes risk. So asset allocation is critical - set a target split across equities, fixed income and cash equivalents, and if you are affluent, consider using the Liberalised Remittance Scheme to allocate part of your wealth to overseas investments. India has outperformed most of the world over the past two decades, but there are plenty of Argentines, Brazilians et al whose wealth has been wiped out due to failure to diversify out of their home economies.

The one thing I have not yet done is taken a good health cover - partly because I have not found a good high deductible, high cover policy. But may be I should get that in place as well.

I don’t expect everyone to follow the same policy that I have followed. But the fact is that it is very difficult to materially downgrade your relative lifestyle post retirement. And in a fast growing economy like India, maintaining your lifestyle relative to everyone else means that your expenses will rise in line with nominal GDP growth (11-12% pa) and not just inflation (4-5% pa). Run a simple excel sheet - on what it would cost to support a life at 75% of your retirement year spending if expenses rise at nominal GDP, and you earn less than that on your income (post tax 9% through a mix of equity and bonds) - you will be shocked when you see how much you need to save.

[V.Narayan]

Originally Posted by Biraj

Very pertinent advice. I will just add to it that one should take the best possible term-insurance and health-insurance that one can afford at that point in time, even if it means stretching a bit.

Just want to share my personal experience......
Few days after my 31st birthday, I suffered a renal failure. ... Again, only part of the expenses in the renal transplant was covered by the insurance and I had to foot the rest of the bill. Luckily, I had enough savings to get through this period of sabbatical and transplant.

My very best wishes to you for good health going forward. Thank you for sharing your very real experience for the benefit of all.

Originally Posted by Hayek

Two years later, I booked an apartment - renting may make much more economic sense given low rental yields in India, but buying one house is a great reason for forced saving (always take a term insurance to repay your home loan of course).

My one lesson has been to always buy (to live in) the best highest status house/apartment that you can afford at that stage in life. If your income rises (as it does for most) and inflation creeps in (as it inevitably does) the pressure of that housing loan becomes more and more easy to manage as the years go by. I believe you should feel proud of the quality and locality of your home.

But I would certainly aim to save at least 50% of my post tax salary through my working life.

I don’t expect everyone to follow the same policy that I have followed. But the fact is that it is very difficult to materially downgrade your relative lifestyle post retirement. And in a fast growing economy like India, maintaining your lifestyle

+1 to that. Last two decades we have lived in a largely thriving economy and with the tide all boats rise. Over the years our standard of living went up at a clipped pace. At some point my wife and I decided we'd reached a spend level we were happy with and spending more only meant diminishing returns. The only exceptions were her shoes and my aircraft models. And pretty much for the last 15 years or so we have kept our consumption at that very comfortable level and resisted the temptations of our friends and neighbours.

Continuing with my old habit of doling out unasked for advice - we are all so fortunate each in our own way. While our limbs and mind work it helps to add a comfortable does of quiet philanthropy to our list of things each year. The key word is quiet.

[V12Doc]

As I age and mature up there is one thing that I could never understand and come up with. Someone once told me earning money is hard, managing it the right way is harder. What is the best way to budget your income so you do not stop growing and at the same time live your life with comfort. Budgeting your income goes a long way in providing financial security, a good standard of living and at the same time help you not make impulse purchases. So let's help each other become better at managing your money!

[alexgv]

Originally Posted by Gannu_1

Pre-closing home loans may be a bad idea since you won’t be able to claim income tax benefits thereafter. Unless you have sufficient other sources to claim IT benefits.

Best to pre-close a car loan ASAP.

I agree regarding pre-closing home loans. Another option to consider especially if the home loan interest is more than 1.5 lakhs (at which point you dont get any tax benefit - may defer in individual cases) is SBI MAx gain or HSBC Smart home type of home loan. These allow you to park excess money you may have against the home loan in a current account lined to your home loan. You pay interest only in the home loan outstanding - balance in current account.
You can withdraw all the balance in the current account at any time based on your needs.

http://www.hsbc.co.in/1/2/personal/loans/smart-home

https://homeloans.sbi/calculators?caltype=MAXGAINCAL

[V.Narayan]

Originally Posted by ramki067

I plan to construct a house in around a year time for that i have to start savings from now on till 1 year for 6 lakhs savings. I already have a 5 lakh FD. So, this comes to around 20% of the total home construction cost, which is 50 lakhs. Rest i have to take a home loan.

After construction, due to unknown job surety, is it better to first clear the home loan debt completely without any savings or with home loan debt repaying, I need to save into some SIPs also? Which is the best option for me?

It all depends on your job security. Decision to foreclose a loan should be driven by risk to your future income rather than tax benefits. If you are fairly sure of a steady income stream from a job in a top stable company in a stable industry then go for the loan and let it run its 10 or 15 years. For example if you work for the Govt or a PSU or some big name company that doesn't hire and fire. If there is risk to the sureness of your future income then look at pre-closure of your loan at the earliest. Another side thought - if Rs 10 lakhs of the construction cost is what you can afford as down payment with your liquid resources (which indirectly reflects income) then you may want to consider lowering the construction outlay of your house. I used to be a business wallah with income that went up and down. I took home loans three times in my life and foreclosed in 2 years on each of them when lump sum gains came in because I could never say for sure I could service the EMI for 20 years.

[amtak]

Hello all,

Starting this as I was pondering over a simple thought of - What percentage of our salary (annual) should be our savings or in other words, where should a line be drawn on our expenses?

When I am talking about expenses, I am not referring to expenses like Amazon Prime Sales or a new sale; I am referring to expenses that we want to avoid, but cannot. It could be like grocery, vegetables, leisure & entertainment, Mutual Funds, Insurances, Holidays, schooling for children, salaries of in-house staff (maids, car cleaners etc)

With this thought, I just ran some simple numbers and it gave me a new perspective of how much percentage of our salaries are taken away by others with little or no efforts.

Some prime examples could be: Home Loan/Car Loan or even Schooling of our children. Compare this to a time, when the salaries were less, education was rather in-expensive, housing was also affordable to some extent.

In today's scenario, home loans can take away upto 30-40% of a person's annual net worth. Some may call it a saving, but at what cost? Education takes up another 7-10% of one's annual earnings.

Vegetables/Salaries/groceries etc add another 10-15% of one's expenses. Holidaying in India would be 10% (considering, hotels are more expensive in India than overseas!) and overseas would be 15-20% depending on where one plans to travel.

Shopping and entertainment is another 10%. This brings me to a grand total of 67% or 80% where in one wants to fit in. Offcourse, this is a rough calculation and numbers will vary for each person.

One surprising result is that the cost of communication is "0%" of one's annual expense. No wonder, why telecom companies are struggling.

I am leaving this table open for all!