Saving Habit

So you’ve managed to convince your spouse about Financial Independence! Any time they have doubts, you forward them relevant articles from FIRE blogs. Every now and then a FIRE couple is featured in the news or magazines and you forward that also with the unstated opinion that “so many people cannot be wrong”. But the truth is things can go horribly wrong and this Valentine’s Day is as good as any to re-focus.

Can extreme savings lead to divorce?

The FIRE community may be transparent about their finances and life goals. But they tend to sweep uncomfortable truths under the rug like for example the impact of extreme savings on relationships. A casual search on reddit FI throws up posts on divorce , breakups , regret and late realisation but the comments are mostly how FI/RE is not the main cause and the relationship would have broke down anyway. While these relationship problems happen to the general population as well, extreme savings adds extra strain to a marriage. My point of this post is so one does not wake up one day and wonder what happened to their life just when you thought all was going well. If there is one thing that can derail your FI/RE goal it is the marriage imploding. So if you are the kind who likes to “mitigate” any risk to their Financial Independence goal, then treat this as a “relationship risk” and nip it in the bud. If you are honest then you’ll forward this blog post to your spouse even if it makes you uncomfortable 🙂

4-5 years is the maximum your spouse can tolerate extreme savings

Year 0 : You(typically male) get super-excited about FI/RE and consume all the words written on the internet about it.

Year 1 : Convince reluctant spouse(typically female) to save 50% of household income through sheer repetition and math. Maybe bank one person’s income for FI/RE and use other person’s income for expenses

Year 2 : You are happy that Spouse is on-board. Spouse is also happy because savings seems like what responsible people do and they are learning so much about personal finance.

Year 3 : Honeymoon period ends. Either buying a house or a kid is in the horizon. Spouse begins to suspect that you are skimping on other important life goals like house, kids etc due to single-minded focus on FI/RE. You brush off their concerns with more repetition and math about how you will reach FI/RE in just the next 7 years. Spouse asks: after 7 years, then what? You reply: I will retire from work. Spouse asks: what about buying a house and funding kids education? You have no answer.

Year 4: Fights erupt regularly over saving and spending especially when the extreme savings is an artificial constraint on spending or investing elsewhere. Your whole FI/RE project that looks good on Excel is turning out to be quite messy in real life.

What can you do?

Start Listening :

If you’ve gotten to this point in your relationship, you have to face the reality that you’ve reached a fork in the road. To the left is marriage and to the right is your FI/RE goal. It is one or the other at this point. So start listening carefully to your spouse. Are they saying that you are penny-pinching for even small luxuries or are they saying that extreme savings is preventing them from reaching their life goals.

Beat a Tactical Retreat :

If you want to go fast, go alone;

BUT If you want to go far, go together.

African Proverb

If you choose the FI/RE fork you are guaranteed to mess up the marriage. But on the other hand if you choose the marriage fork there is a high chance that you will still hit your FI/RE goal. Here’s how: Frame your spouse’s life goals in FI/RE terms. For example: Say your spouse wants buy a house instead of pouring all savings into FI/RE. Think of it this way: You will have to buy a house to live in retirement anyway and buying a reasonable house will eliminate the rent expense which will reduce your overall FI/RE target. Why not try and crush a house loan within 7 years using the same FI/RE extreme savings method? Marriage saved. House bought. FI/RE target reduced. win-win-win. Unlike regular people the EMI will not be a sword hanging over you every month as you have a large safety net saved up so far.

Build the life you want, then save for it

I borrowed this heading from this reddit thread. You don’t have to read the thread to understand this logic. Frugality is presented as the foundational principle for FI/RE. But I’ve kept hammering the point that you can’t be frugal during saving years and hope to live lavishly during the retirement years. The math does not work that way. Your success will be more sustainable if you truly understand your lifestyle expenses and save for “that” instead of some fudged Excel target. If your life-partner is telling you strongly that you are ignoring major lifestyle expenses then listen to them.

Stop hating work and Increase your Income

Just because you stop saving for FI/RE and instead buy a house or fund your kid’s education does not mean you’ll have to abandon your FI/RE goal. The solution is to increase your income and keep pumping the surplus towards your corpus. A lot of FI/RE aspirants hate their jobs and that’s the primary motivator for FI/RE. Have you considered earning extra income on the side either using your existing skills or your passion? Have your considered brushing up your skills and applying for a higher-paying job? Have you approached your boss and asked them what you need to do to get a promotion in the next 1-2 years? Your FI/RE corpus saved up so far will give you the guts to take these bold steps. Now you have your spouse supporting you 100% in these bold moves since they know you are doing it for the family. You can then encourage your spouse also to increase “their” income in a similar fashion to meet all life goals faster and still be on course for FI/RE

What does all this mean for your FI/RE goal?

If you can only save for 4-5 years after marriage and assuming you’ve saved for 4-5 years as a single person before marriage, then you’ll realistically only hit Coast-FIRE – meaning you would have already saved up for retirement at age 60 in your 30s itself. But it would not be the 25X you had targeted. But this is still much better than 95% of the working population and the safety net is still there for 10 years if not 25. You are better off than you realise!! If you don’t feel confident at this achievement of 10X then you will not feel confident even with 25X

Conclusion

I still recommend saving for FI/RE corpus as the first asset you should build instead of a house which is a dead-weight career-killer in India. Because FI/RE gives you the freedom not to worry about money freeing you up for better things in life. Having said that, Life is all about balance. So don’t focus single-mindedly only on achieving FI/RE neglecting other important life goals. Think back to why you wanted to FI/RE in the first place and whether the FI/RE journey has already given you that comfort and confidence. Think of achieving other life goals as re-balancing your portfolio into multiple assets one of which is a marriage you can bank on in good times and bad.

Happy VALENTINE’S DAY 😉

Reading or hearing about how other people are doing better than you is frustrating especially when you started out similar to them. But the past is the past and one can only fix the future. Starting this year, you can make few small changes to your life and allow them to compound increasing your quality of life. None of them are radical or original, in fact none of them has anything to do with even money.

Stop reading or watching the daily news … completely

If you want to make more money, you need to carve out more time from your already busy life. Most of us read the news or catch up on sports/entertainment/social media if we get just 5 minutes of free time while waiting for a work call to begin or just before sleeping at night etc. 5 minutes turns into 1 hour because the media knows your brain more than you and tempt you with just one more supposedly important article you should read. I also suffer from this bad habit. So this is my main resolution this year : completely stop reading daily news in any and all forms including discussing with anyone in person. Personally the biggest benefit is that I get a proper 7-8 hours of sleep since I don’t read on my phone before going to sleep so I wake up fresh the next morning.

I tried this “giving up news” experiment last year when my son was a new-born and I barely had any time for sleep let alone news. Amazingly I did not miss anything important and I had more time to read about parenting a new-born baby which is far more important than things outside of my control. On a side-note, if you are a father I recommend reading this Manifesto for fathers on how tiny distractions pull you away from family time.

Fix your sagging energy – it could be vitamin deficiency

Even after sleeping for 8 hours, I would feel tired and drowsy by 11 AM. In my corporate job, this would be my cue for a coffee break and then again at 3 pm and sometimes at 6 pm also. But my fatigue recently increased more than could be explained by sleep deprivation alone. A visit to the doctor revealed that I had really low Vitamin B12 levels. I now take daily supplements Vitamin D and Vitamin B12 and I can notice the change in my energy levels. Read this article for a good explanation of this epidemic in India. If you are a woman, you need to check if you have iron deficiency or a thyroid problem

I also take a 30-minute nap in the afternoon around 3pm. This helps me get out of my post-lunch sleepiness and I’m energised to work again. If you are at the office, simply shut your eyes, get comfortable right in the office chair and meditate for 20 minutes wearing a noise-cancelling headphone. Inform your boss and colleagues of this before-hand as workplaces can be conservative. You can even book a conference room at work for this purpose.

Current work culture requires you to work long and hard. Most of this is unproductively spent keeping up appearances. Solid work can be done in just 4 hours a day in a “Flow” state. My tip to get into a flow state is start working on the easiest task first thing at work. Before I know it, I’m in a trance state tackling complex work. That’s because small wins incentivise us into the work mode while a complex task can be off-putting.

The human body is like a battery. You need to recharge it efficiently and also use its energy efficiently to be productive and not be tired all the time.

Exercise daily or atleast start walking everywhere

As soon as I entered 10th standard, I was forbidden to play after school because it was supposed to make me “too tired” to study in the evening. I realised much later that this is a myth. In fact exercise helps your mind become even clearer allowing you to be more productive in a shorter time … again the “Flow” state. The problem is that a person who is just starting to exercise or play a sport will feel tired initially before they get used to the regimen. Then it is all benefit from that point onwards. My former boss would run a mini-marathon every day before coming in to work in the morning and he was the most productive person I’ve ever worked with.

Because exercise also releases feel-good hormones you will feel less need to consume junk food or junk entertainment to make you feel better after a hard day’s work not to mention the social aspects of friendship. You don’t even need to go to the gym – simply walk a few rounds in the park, load up a yoga video from youtube right at home, take the stairs instead of the elevator, walk to the grocery store and walk back with the heavy bags or play a favourite sport of yours.

Work on making more money when the world is sleeping

This could be early morning or late night depending on your preference. Now that you have spare time from not reading the news and being more productive at work from fixing your energy level through exercise and “flow” state, you are ready to make more money.

Spend an hour each day exploring ways to make more money using your track record and skills. Research what other people in your industry do to earn more money. Sometimes it might just be learning a new skill or even searching for a new job and understanding what you need to do at your current job to make the cut. Honestly you know best. But understand that spending an hour daily on your deepest needs will make you a happier person at work and life even if progress is slow because you know your needs are being addressed finally.

Publicly write and share your progress

This is not just for accountability but for visibility. One of my friends used to blog regularly about every new semiconductor chip that came into the market because he was interested in the new features. He would even predict the kind of features that a company like Apple is planning based on their including the chip in their next laptop or phone. This led him to jobs in the chip industry and frequent calls from venture capitalists interested in picking his brains.

Even this blog on financial independence has been linked from Times of India, Outlook Money, CNBC, Mumbai Mirror and The Goodmen Project etc just because we kept writing about our progress and learnings regularly every month.

You can start writing a blog based on your interests and cross-post it on LinkedIn, Facebook etc. Trust me – whether you seek a better career or want to start a new business or just want to make a social impact, your visibility as a person who knows what they are talking about will open doors for you.

We deal with money every day but most people don’t understand the true nature of money. They understand the “currency” they give to the shopkeeper or the “salary” they receive every month but tragically many never understand “money” their entire life. So they end up with a love-hate relationship with money where they love it when it buys them joy and hates it when they don’t have enough. In this blog post, I will share some of my original insights on money and some of my painful unlearning. Fair Warning: My examples are highly over-simplified to explain the concept. You’ll have to empty your mind temporarily of old baggage you might be carrying about money to understand what I’m saying here.

TABLE OF CONTENT

How we get wrong ideas about money

By the time we are born into this world, some people already have more money and others have less money. That is the root of all misunderstanding about money. Because we don’t understand how the world got to be that way by the time we make our entry into the world. So when we see others have more money than our family we only see inequality and feel envy or anger instead of realising the magic of wealth-creation, compounding etc, the exposure to which naturally comes if your family is engaged in business.

• Not helping matters is hearing elders in our family repeat half-truths about money and speculating wildly about how someone made money etc so we grow up biased against money but wanting it nonetheless.
• These days with extremely specialised jobs we are far removed from the source of value-creation that we don’t even understand why we deserve our salary or what purpose our job serves. As a result, we simply feel entitled to a market salary or a bonus regardless of the actual value we added that year.
• As if all this were not enough, the media is full of daily stories of people who got rich(er) by unethical means or due to their closeness to government. So we view anyone who makes a lot of money with suspicion.

The net result is that the basic clarity of what Money/Wealth signifies gets lost in a brain-fog of Maya weaved by society’s collective misperception.

Does anyone remembers their parents telling them this:

Kya paise paid pe ugte hai

How Money is created out of thin air

You work for a company and they pay you a salary. So you got some money “transferred” to you from the company. But how did the company get its money and the person before it and so on till the source of it all? Let’s time-travel to a hypothetical beginning of a caveman who while wandering in the jungle finds a wild banana tree. He likes the taste of the fruit, so he takes a sampling and clears a small area near his cave and plants it there. Over time it grows into a banana tree and gives him about 100 banana fruits on harvest day. Other cave-people know that the banana plant and the fruits “belong” to him since he planted it, watered it, protected it from bad weather and animals. They love the fruit since it is filling, ready-to-eat and can be carried with them wherever they go. They see the value in getting the fruit from our banana-man nearby instead of a dangerous trek to the jungle and lugging back wild bananas. In exchange for bananas, they offer him things of value they “own” like meat, weapons, footwear, farm tools etc. This part most people already know as the Barter System or Exchange of Value.

But what is truly mind-blowing is what happens next.

Our banana-man now understands that he has something very valuable to other cave-people. Someone just gave him a wooden spear the other day in exchange for a whole bunch of bananas. This saved him a whole lot of work trying to make the spear himself from scratch to replace his blunt old spear. Then another fellow just gave him some fresh fish he caught, again for another bunch of bananas. Wow! he thinks…if only I could make more bananas, I could maybe move out of this cave I’m sharing with other people and build myself a house facing the sea. So he offers a cave-buddy a bunch of bananas every month if they help him plant another 10 banana samplings taken from the original tree and take care of watering them, protecting them etc. Within a year, our banana-man’s wealth increases by 10 times since he now has 10 more banana trees!

In the hypothetical society above, banana is the currency people are using to exchange goods and services. Our enterprising cave-man literally “grew” more money by simply planting more banana trees. Talk about money growing on trees! This is what I mean by money getting created “out of thin air”. A year back people were making a long & dangerous trek into the jungle for bananas but just a year later they are getting bananas delivered right at their cave-door.. it wasn’t there before and now it is there as if by magic.

The Big Secret: Money equals your potential to be useful to others

Now, what is the source of our banana-magnate’s wealth here? Is it the bananas he is selling, Is it the banana-making trees he owns or Is it his desire for a sea-facing house and lifestyle he can afford with his banana business? The real source of his wealth is his “enterprise” where he took risks to bet on planting more trees, collaborated with others to maintain them and ensure all the ripe bananas get sold before they go bad. Now not all of the cave-people need to be entrepreneurial to generate wealth. For example,

1.The farm-help that our banana-magnate hired to plant more trees simply exchanged his day-labour to get bananas.

2.The fisherman who sold fish used his fishing skills to get bananas.

Each of these humans used their natural talents to give others what they wanted and got their own wants fulfilled in return.

Your ability to make money is nothing other than your potential to be useful to others. Just as your human potential is limitless so are human desires which means your ability to make money using your potential is also limitless.

-Naren

What does this mean?

• This means that Nobody is stopping you from making more money other than yourself.
• Also, money is not “given” to you by others with more money: You “generate” money out of thin air by giving others what they want. Money merely represents the value you’ve provided others.

Money is simply the external manifestation of the potential that is already inside of you. You just have to bring out your potential as money. It is like speaking.. the words are already inside your mind.. you just bring them out as… Share on X

Homework for Readers

Try and apply the above banana & inner potential concept to understand more sophisticated ideas like

• Is there any limit to the number of bananas that can be planted?
  
• Can you see Compounding at work in the banana farm above?
  
• What if someone has nothing of value to offer to afford a banana? How can this poor person solve their lack of money problem?
  

While answering these questions don’t forget that Money = Your Inner Potential. Otherwise, you will fall into the classic trap of looking only at the bananas and not realizing how they get created in the first place.

Further Reading – if you are interested in how this translates to the real world

Central Banks around the world “create money out of thin air” using the Fractional Reserve System. Think of it simplistically as governments printing money to represent the bananas that “will be” be planted in the future.

How to Make Wealth : http://paulgraham.com/wealth.html

Let us know your thoughts in comments!

If you enjoy reading such blog posts, drop us a line in comments and let us know! we will love to write some more concept based posts.

Feel free to add you views in the comments and enrich this post.

When I started studying Engineering, I had no plans of doing a Masters degree abroad. But my engineering college was filled with students whose goal was to go to the U.S. So much so that students were studying for GRE & TOEFL right from their first year! This was the general atmosphere everywhere at that time – IITs, BITS, REC/NIT etc. I was caught up in the same excitement and decided to study abroad for my Masters. But the whole journey of getting there was not so straightforward- it had it’s own drama. College study abroad or in India is the biggest expense for young people entering the work force and second biggest expense after buying house for parents with kids. if not managed well it can derail your retirement plans like it did for my parents.

I read this on Subramoney the other day “How much should you spend on your children’s education? Suppose you have estimated that you need Rs. 6 crores for your RETIREMENT. You are now 53 years of age. You have about Rs. 2 crores and 6 years of working (and you also expect your Rs. 2 crores to double in this period), so you think you are comfortable. However, suddenly your kid tells you he/she has got admission in a European college – it costs Rs. 90L for the education. Your second kid is also watching.”

This hit home- because my Masters study abroad had derailed my parents’ retirement. In-fact such last-minute expectations from children can derail anyone’s retirement plans. In this blog post I will share my story and learnings so you can plan ahead.

This blog post is about a Masters Engineering degree in the U.S but it can also easily apply to MBA in India or other second degrees outside India.

To know our plans to fund our kids graduation read this blog post .

Study Abroad- a growing phenomenon in South Asian Countries

Going to study abroad is a phenomenon most unique to South-Asian countries. Because higher education in these countries is either extremely competitive or low-quality, quite a bit of students opt to study & then work abroad.

Dollar Salary is a big attraction for getting a foreign degree apart from the opportunity to get a high-quality education or do cutting-edge research. The dollar-rupee exchange rate today is Rs.70 to 1$.

As long as this exchange rate holds true in the future, your retirement will be derailed if you or your child wants to study abroad on your dime.

My PG Studies Abroad derailed my parents’ retirement plans

I was reminded of how I told my parents that I wanted to study abroad in the US to do my Masters immediately after I finished my B.E in India. My father had retired from his bank job a few years earlier. Their plan was that once I got a job in the city they would move back to their native place where they owned a house and costs were much lower.

After completing my B.E in India, I was sitting at home unemployed- there was no campus recruitment in my college because of the dot-com bust. Meanwhile along with some friends of mine I had applied for couple of Universities in USA .

Luckily I got admitted to a state university in the U.S for a Masters degree. The next hurdle was student visa, they were getting rejected left and right post-9/11 attacks. I got lucky again and got a visa.

The next question was how to pay for the fees in U.S dollars. Studying abroad is an expensive affair, my education fees was running into lakhs of rupees. Education loan came to the rescue! but with a catch. My parents had to put up their house as collateral for the loan.

Being the kind of middle-class parents, who would sacrifice a lot for their child’s education, they also chose to pay the interest while I was studying so the loan repayment would not be burdensome for me. So for the next 5 years they had reduced monthly income due to interest payments apart from their largest asset stuck as collateral with the bank.

It was all one big unplanned mess. But one that I am grateful for and forever indebted to my Parents. Thank you Amma & Appa.

But given a second chance to study abroad I would definitely try harder for scholarships.

Other Kids Had Scholarship or other ways to pay for college

Now when I got to the U.S, I saw that kids around me had been much smarter than me. They had gotten tuition scholarships & all-expenses-paid fellowships from India itself because they were better-prepared and well-informed.

Other peers of mine took a bet and worked under a professor for a year to prove their worth and later snagging a teaching/research assistantship .

Others managed to wing an internship that was a pathway to a job at the same company. So basically I was one of the few clueless middle-class Indian kids who had no idea how to snag a scholarship and was paying full tuition cost through an education loan! yikes!

My fortunes turned around towards the end of my course as a result of some lucky breaks. But my lack of initiative as a student is not something I am proud of. All the more because it delayed my parents’ retirement for about 5 years until the education loan was paid off.

88% Indian consider studying abroad for PG

My parents are not alone when it come to putting their kids education ahead of themselves. See the statistics below

• 88% consider post graduation degree a necessity and want to do PG in USA
• Only 1% students in India fund their education fully or a part of it.
• Whereas in USA over 60% of kids fund their education fully or a part of it.

Truth about Studying Abroad based on my experience

I’m listing down a bunch of truths about studying abroad.

Quality of education in US Universities

• Even an average U.S university has a better quality of education than even elite Indian universities. So the experience is worth it. Compared to the quality of teaching at my U.S university which was not Ivy League but a regular state school, I would say that my entire 4 years of engineering in India was a waste of time.

• The U.S curriculum is practical, professors collaborate with industry and the academic culture encourages asking questions. We were told during orientation by the professors that “There is no such thing as a dumb question”. This one statement encouraged all Indian students to ask all sorts of questions we had never asked while studying engineering in India even really basic ones. The American professors would be surprised by such basic questions but they would patiently answer it without putting us down.
• In India even premier institutions have an out-dated curriculum and asking questions is actively discouraged by professors who would take great pleasure in publicly humiliating the student asking the doubt. No wonder students in India tune out after a while.

Job Opportunities Abroad After PG

• There is no guarantee of student getting a job after graduating because of work-visa restrictions now in place in Western countries. How is the kid going to pay off this dollar loan if they can’t earn in dollars at-least for a couple of years after graduating?Most applicants are not going to get into Harvard, Stanford etc. given the simple math around number of seats available in each school. They will land in the Tier 2 universities that will accept them in return for full tuition fee. After investing so much time and effort into the application process, most applicants will choose whichever university accepted them.
• Coveted Companies like Google, Facebook, McKinsey, Deloitte, Goldman Sachs etc will not hire directly from Tier 2 colleges unlike how they actively hire from Stanford, Caltech, Harvard etc. No different from how IITs/IIMs are favoured in hiring in India. But if your kid has talent they can always get hired into at-least tech companies later on after some work experience.
• However, competition for seats & jobs is not mad-crazy & cut-throat like in India. You definitely get the feeling that there is plenty for everyone at-least in the U.S. I think this has to do with the dynamism of their economy & universities and not due to their lower population.

I worked in US for 10 years after my PG. You can read more about my experience.

Scholarships & other Aid

• If you & your child plan ahead, your child can study abroad for FREE using scholarships and teaching/research assistantships.
• Scholarships & assistantships can be figured out by kids who take initiative and who have clarity on what they want to do in life.
• Getting admitted to a U.S university is nothing special these days. U.S universities will give admission to any international student who can pay full tuition fee. That’s their business model these days. That’s how they pay for their operating expenses and scholarships for American kids since the U.S government has cut education & research funding. I suspect the same is the case with U.K & Australia as well. So getting admission without scholarship is like buying a product if you can afford to pay.
• So it should be clear by now that most western universities are banking on Indian and Chinese parents to pay full course fee by appealing to their nostalgic attraction for a western degree’s bragging rights: “My son/daughter is studying in ___ University in U.S/Canada/Australia/U.K”
• Snagging a scholarship or assistantship helps the child stand out while applying for jobs & internships. It is a valuable signal for potential employers. In most cases, professors with industry links will recommend their research assistant for employment at the company they are consulting. So it is not just a matter of saving money on tuition as it opens doors that are not available to students who study on an education loan or their parent’s dime.

Balance Early retirement and your kids college study abroad?

• Finish saving for your retirement very early by your 40s so you are not caught between saving for retirement and funding kid’s foreign education at the same time. Plus if your retirement corpus is doing better than expected you can fund your kid’s education partly.
• Teach kids to be pro-active and self-aware. Clueless kids will follow the herd and highly likely waste their parents’ money. Like I did.
• Encourage your kids to get at-least 2 years of work experience in a related field before going for a Masters degree abroad. This builds life skills like time management, professionalism, communication skills, independence, self-awareness, work experience, clarity, savings, maturity etc. My batchmates in the U.S with work experience had an easier time getting jobs & internships compared to students who went directly after college. They were simply better prepared in all aspects. Although an argument could be made that once a kid tastes salary money they won’t be interested in studying further, the corporate culture will ensure that your kid gets frustrated soon to look for escape routes like studying abroad.
• Talk to kids who studied abroad during their India visits – ask them relevant questions like job prospects for the course of study. It is your child’s responsibility while still in college to network with seniors who are headed abroad and figure out how to snag scholarships and assistantships while still in India by building up their academic profile to match what their target university is looking for.
• Encourage your child’s to publishing research papers, do original projects, interning at relevant companies, networking with professors at western universities, attending industry conferences, studying scientific journals etc. during the 4 years of college in India. As an analogy : would you fund your child’s admission to film school if they have not shown any interest in school dramas or college theatre or even neighbourhood plays? Communicate this fact to them in clear terms right from their first year of college. Such pro-active and self-aware kids are most likely to get full/partial financial aid on their own sparing you the expense.
• Encourage your kid to get at-least partial scholarship as a condition for standing collateral for the education loan. If that is not possible tell the kid to find a white-collar on-campus job to pay for their living expenses or to pay interest on the education loan. blue-collar on-campus jobs like at the school cafetaria or bookstore are a time sink & distraction from academics as they will physically tire out the child. I joined and then quit one such low-paying, physically-intensive job to focus on studies instead.

If Taking Loan is necessary

• Take education loan in US: I repaid a few extra lakhs in loan just because the exchange rate was not in my favour during repayment period. If you have a relative in the U.S who can stand guarantee then you can get a education loan in the U.S itself in dollars. This has much lower interest rate and protects your child from exchange rate fluctuations. You can enter into a separate legal agreement with your relative promising to pay them if your child were to default on the loan. More info here
• Avoid doling out cash from your retirement corpus. Instead stand guarantee for any education loan taken by the kid.
• One ideas is to take loan against your house as collateral as you can still live in it or rent it out while it is put up as collateral with the bank. It is a win-win way to leverage an illiquid asset. You can choose to pay interest on the loan while your kid is studying so the loan outstanding does not compound over the course of study.
• Take out accident insurance on your kid if you are standing collateral for an education loan.Why? I realised that if something had happened to me after 2 years of college on loan, the bank would have auctioned off my parents’ home to recover the loan. A bank auction does not try to get the best market value for the house instead their main goal is to recover the loan amount. Taking out accident insurance on your kid with yourself as the nominee for the amount of the loan ensures that you can pay back the education loan and get back your house in case tragedy strikes.
• Avoid Education consultants– who simply help you fill out college application forms & guide you through visa process are a waste of money as ultimately it is your child’s profile that determines admission. Admission with scholarship reflects positively during the visa interview as well.

Read our blog post on how to pay student loan in shortest time.

Graduation Studies Abroad?

A new trend I’m seeing is kids wanting to do their 4-year engineering degree itself abroad given the extreme competition and low-quality in India. In just one generation I can see kids’ expectations getting higher and higher as a result of being surrounded by aspirational peers. But this outcome is to be expected if as parents we’ve strived to send them to the “best” schools here in India.

I have no idea of how to plan for a 4-year college study abroad as it is more expensive, has fewer financial aid options and requires the kid to be more mature to handle the greater freedom in western countries. So I’ll leave it to the readers to throw light if they have experience in the matter

If you’ve studied abroad, please share your tips to get scholarships and other financial aid for Indian students.

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A reader asked us a couple of relationship questions this week. When we started answering it both Naren and I thought It will be better to answer the very same questions separately in two different blog posts with each of our perspectives. So this one is written by Sugandha and has a women’s perspective.

Alert: I have gone beyond the question asked. This blog post is long unfiltered freestyle story narration format:-). Which is purely based on my life experiences. For short- crisp answers to these questions jump to the end of the blog

• Q1. Are both of you guys are on the same page about this kind of a lifestyle?
• Q2 How important is it to find a partner who has the same money script as you?
• Q3 I’ve heard that money is the Number One thing couples fight about. If so, does having the same script make these kind of decisions easier?
• Q4 I ask you specifically because I feel like following this kind of a lifestyle is unacceptable to a lot of people, and can cause more than a few problems.
• Q5 If I’m looking for a partner, does this have to be an important consideration?

Men and Women think differently about managing money

A few generations back family finances were a simpler affair- Men made big money decisions outside of the house and women got allowances to run the house and managed the household expenses. Women were okay not knowing things beyond running the house. It was also okay for a husband to keep financial secrets from their wives. Maybe imperative to keep some money away from their spendthrift wives:-)

Things are never black and white. so in some houses women had more say than the others. But managing overall family finances was a job for the Man of the house.

I remember we had a black tin box with all financial documents that my dad would look at from time to time while my mom would quietly sit next to him, if just in case he wanted to discuss something or wanted a cup of tea.

Few other household women maybe have more say. My maternal grandmother a graduate in those days married a lawyer. She would have a say in most financial matters – buying a house, selling/buying agricultural land etc.. partly because she had her own personal inheritance from her father. But still the final word on things would be my Grandfather’s.

My grandmother is the most intelligent women I have known. She is 92, who still remembers what she studied in her 4th standard. But she still told my mom and even me to listen to the Man in our lives when it came to money and other important matters. Her words “Aadmi ka dimaag jyada hota hai, wo aage tak ke sochta hai”.

I could never understand the contrast in her personality. She could have a long conversation with our family doctor on new medical advances but for some reason felt she should rely on her husband’s opinion when it came to managing finances.

Perhaps this shows the role women were groomed for traditionally and their lack of confidence in managing personal finances is not a question of their intelligence but their education.

On the other hand with autonomy comes responsibility. The old way not only prevented women to learn first-hand about personal finances but it also had put immense pressure on the Male to independently manage finances – which is a humongous task for a single person.

Anyways all the above have influenced modern Indian Women like me who were never exposed to personal finance while growing up but are now walking hand-in-hand with their partners as far as earning money is concerned. They don’t feel inadequate in any which way like perhaps their grandmothers or mothers did.

These smart, hardworking , financially and emotionally independent women however are clueless about managing their finances. They still depend on their husband, father, brothers, or that helpful male colleague to help them with taxes, investment etc etc..

What I am trying to tell from this cross- generational story is that Men and Women are not on the same page when it comes to finances because of the different roles both genders handled in the past and lack of exposure women had on this subject.

Change is of-course happening. I had to learn to do my taxes, I learned to do my investments too. But it was a conscious effort on my side to learn and understand everything about personal finance.

So where Managing money may be a more straightforward journey for men, for most women it was limited to budgeting and shopping till a while back. They are just now wrapping their head around complex things like taxes, investments, Mutual funds, asset allocation, portfolio re-balancing etc.

How we as a couple communicate and handle our differences when it comes to personal finance?

This will be best shared by sharing anecdotes right from the start. From when we were not even married or committed to each other

Honesty is the best policy

When Naren and I first met he had come back from the US and was making negligible profits in his business. While we liked each other the next obvious question was of marriage so he disclosed his income to me.

I was shocked! I thought how is this guy thinking of marriage without regular income? So I asked him exactly this. How? to which Naren replied “I can take care of my part of expenses” That was the second shock to me! I was an independent, working woman, earning enough to sustain a family but I was not okay with the idea of marrying someone who is talking about splitting living expenses after marriage.

I saw my own hypocrisy first-hand. I wanted to be an equal in marriage but at some level wanted my future husband to have an upper hand when it came to finances.

At this point i thought we possibly can’t marry – A decision we soon changed 🙂 more on it some other time.

As evident from the story at this point our view on our finances did not click at all. The only good things I can say about us at this point were:

• We were completely honest with each other.
• We left the communication open.
• We were somewhat open to accept where we may be consciously or unconsciously being irrational.

That helped. So we highly recommend it.

Use the initial attraction to share biggest dreams

Naren and I shared the most absurd dreams with each other when we first met- travelling for months, living in a remote village, being our own boss, not going to work on Mondays etc etc. We had nothing to lose, we were not committed or too involved yet with each other.

All this gave us a good perspective about the other person. We knew at this point that if we choose to spend life with each other, it would not be a conventional life.

When you meet someone you really like they give you strength and courage to pursue your dreams..There is a reason they want to spend their life with you.. Use the power of two, Naren always says that when two people decide to get married 1 + 1 should make 11 and not mere 2. I agree.

And Guess what! All of those absurd dreams we shared with each other when we first met, quite a few of them are now a reality!!!

Think win-win

When I told my mother I met someone I want to marry but he has just started his business she told me to not quit my job ( i was independently trying to take break from work at that time). She made a valid point and I thought it too will make our post marriage life easier.. As I would continue with my work till Naren settles down in his business.

When I told this idea to Naren he did not like the idea to hold my plans for his sake. He assured me that I do not have to sacrifice for his sake. At this point Naren also offered to go back to a job if that is what is needed for us to start a life together.

Both the above ideas were sensible safe options. But involved sacrifice on one person’s part. So we discussed it and went ahead with what was right for each one of us. I asked Naren to continue with his business as long as he wanted and he asked me to quit my job if I wanted.

It is good for the long-term if both the people in relationship can progress in a relationship at the same time. Sometimes what is safe may not be right thing to do.

A good tip we follow from book-7 habits of highly effective people is while making a decision look for win-win solutions to ensure harmony in long run. Win-lose situations soon bring resentment in a relationship. Below is the snapshot from the book that explains the win-win mindset a bit more in detail

• 

Below is the amazon link to the 7-Habits of highly effective people by Stephen Covey.

Talk about money and your quirks

I had a very twisted relationship with money. I totally appreciated all the comfort that money bought. But when I started making more money I felt that money is bad and it is preventing me from growing spiritually. As weird as it may sound now, that was how I was when I met Naren.

Naren was weird too in his own way.. I will say he almost believed all his problems would vanish if he saves enough to retire early.

When you are young sometimes you don’t know all these things about yourself. And even if you know you are not confident how the other person will take these quirks so you may be tempted to hide some of your quirks.

Well we would say that no matter how awkward you feel about certain aspect of money talk it out with your partner.

Sharing expenses, Investments does not mean that you are not romantic or love each other any less

Another anecdote on bringing up awkward subjects- Naren and I had decided to always have 50-50 partnership in all aspects- money, investments, house work etc.. So, all our investments post-marriage were split 50-50% right from the SIP stage. Once we decided to increase our monthly SIPs and drop a few mutual funds from our portfolio but these new changes reduced my share of investments by ~10%.

This bothered me . But I also felt bit hesitant in sharing this with Naren. I thought I love him and we plan to spend rest of our lives with each other. So this mere 10% reduction in my share shouldn’t be a problem. But it did not sit well with me and we discussed the matter and made some changes to restore the share to 50-50 once again.

Was it an awkward conversation? yes it was – But if you are honest and are coming from a good place in your heart the other person will sooner or later understand it.

Rationally there is no need to mix finances with love. Having clear division of your family finances does not mean you love each other less but something two independent adults should do to avoid any bitter feeling later on in a relationship.

Also some people may fear that talking money may take out romance from their relationships. I have a friend who thought that way. But what can be more intimate than sharing everything and being fully transparent?

But it is still okay to support each other financially

Couple of months before our marriage I had taken a sabbatical from work. And I was living off my savings. At this time Naren and I were also doing lot of travel together and consolidating our finances.

We both independently had enough savings to sustain ourselves for couple of years. Naren’s business had started to make some money, so he suggested that he will take care of both our expenses till the time I get back to making money. He also said that all my own money I should re-invest in higher return assets under my own name.

His idea was that he can support me now and later he could take a sabbatical while I support him. I liked the idea because it took away some pressure from my head while I also felt confident about our partnership.

Sometimes it is okay for one partner to give and the other to take it graciously. And when the time comes, to return the favour graciously. But both partners should be very clear about how much one wants to give and take comfortably.

Nothing should be taken for granted.

Naren – thank you for loading the dishwasher every day, filling the water bottles and putting my water bottles on the bedside each night 🙂

It Took Time

We spent good 3 years of our relationship understanding each other’s point of view, debating, arguing about it.

Did we have fights? Hell yes we did!

Off-course we are not in agreement most of the time, but with time we are able to see each other’s perspective and move on.

Align Life Philosophies & rest will fall into place

Sometimes we feel we are able to find a resolution to most of our money and general conflicts is because we both have a lot of common life philosophies. We both are very different in many ways but these broad philosophies we share help us find common grounds:

• Love for freedom
• Working on our “selves” to be a better, happier, more efficient person
• Living an uncomplicated life
• Self-motivated and independent
• Being patient while pursuing a goal
• Believing that with planning you can achieve most of things you want from life
• Always valuing individual over society, rituals and religion

Educating ourselves against obvious pitfalls

Naren gets 100% credit for introducing me to Vijay Nagaswami’s book 24 X 7 marriage. The book talks about issues in New Morden Indian relationships/Marriage beautifully. Writer does not stop at sharing the most common pitfalls in a new relationship but also provides good solutions to overcome such situations.

The book also has a optimal marriage template that can be used by couples with very different point of views to come to the common grounds.

The second book 50-50 Marriage focuses on problems of couples in longer marriages.

I recommend both the books. It is refreshing to read an Indian author with unbiased prospective on most common problems faced in today’s marriages.

Below is a amazon link for both the books:

Keeping Individual alive in a relationship

Naren and I have common goals such as saving up for early retirement, our son’s overall and financial well being etc.. We work on these goals together as a team.

But we have independent goals as well. Few of my independent financial goals are saving up to buy a bigger house, upgrading our lifestyle a bit every few years, doing more travel. It is clear between us that all of these are mine to accomplish even if Naren is not as passionate about these as I am. He may or may not meet me half way for some of these and it is okay with me.

It is impossible to be in agreement to everything in a relationship. In such cases it is better to let your partner know how important these things are for you and pursue/handle them independently.

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Reader Q & A

Read this to know about money scripts

Q1. Are both of you guys are on the same page about this kind of a lifestyle?

Ans – We have slight differences when it comes to our lifestyle. But we are in agreement in how we both will get to it. We have agreed to live no frill lifestyle acceptable to both till we reach F.I.R.E and after that we plan to add few frills:-) We both have agreed to match our FIRE corpus to meet every lifestyle upgrade.

Q2 How important is it to find a partner who has the same money script as you?

Ans– Naren and I had different money scripts, so I guess it is okay as long you both understand each others attitude towards money and are okay with it.

Q3- I’ve heard that money is the Number One thing couples fight about. If so, does having the same script make these kind of decisions easier?

Ans– Yes, It is. followed by household chores and now that we have a baby- I will say having a baby puts lot of pressure on a relationship too.

I am guessing similar money script alone can not insure successful relationship. Besides money script there are other things as well that influence a couple, such as how well you communicate, how much you respect each others views etc…

Q4 I ask you specifically because I feel like following this kind of a lifestyle is unacceptable to a lot of people, and can cause more than a few problems.

Ans– Yes it is not everyones cup of tea for two reason that it is lot of work initially and this lifestyle singles you out ,and you may feel peer pressure. One has to be really invested in it some way or the other for it to work.

Q5 If I’m looking for a partner, does this have to be an important consideration?

Ans– Yes I think so, for a healthy- fulfilling relationship it is important to know how your partner feels about it. They may or may not want to participate but they have to at-least be in full agreement for you perusing it.

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Last month an apartment in our parents’ society caught fire. The building had to be evacuated, nobody got hurt but the apartment that caught fire is completely destroyed inside. The reason for the  fire was a faulty wiring in the apartments. For the longest time my father was reluctant to buy his home owner’s insurance and I could not convince him otherwise. In fact it is just not him, I found many people of that generation reluctant to buy any insurance beyond life insurance.

Their lack of home insurance used to make me very uncomfortable. Since only few years back they moved into their dream home and are now enjoying their sunset years. It used to bother me to imagine how a single adverse event can put them in an avoidable financial difficulty. So I ended up buying their home insurance policy and since then every year I renew their policy along with my insurance for the apartment I own.

Coincidentally this year I had renewed their home insurance just 1 month prior to this fire incident. My father had wanted me to stop wasting money on home insurance since they tried filing a claim for minor water damage in the kitchen and the company did not pay. In my mother’s words “The builder is very good and he has built it to withstand earthquakes so no need for any insurance”. But once this fire incident made it to the T.V News Channels & Newspapers, all our relatives/friends started calling our parents to make sure they are ok. Now my father no longer considers it is a waste as they’ve been jolted from their complacence. They now agree that it is useful.  So starting this year my parents will pay for their own home insurance 🙂       

Almost all of us take life insurance and since motor vehicle insurance is mandatory we take that as well. Health Insurance has become mainstream now. So we are left with one major insurance which is not commonly taken – Home Insurance.

As per a survey, it is estimated that only 30% people in India have home insurance however 75% knew that it was important to take a home insurance. In spite of knowing it is important most people did not insure their homes. This seems very absurd considering the love we have for buying real-estate. Most Indians like my parents are real-estate rich and cash poor. When you have so much at stake what stops one from insuring their homes?  It costs only approx. Rs.2500 per year to insure a Rs.50lakhs apartment and Rs.5000 per year to insure a Rs.1 crore apartment.

Benefits of buying Home Insurance

Natural calamities have increased manyfold in the last 10 years all over the world. In India, Chennai floods & Kerala Floods are just some recent unfortunate incidents where people lost their homes or incurred heavy damages. Home insurance 

1. Covers your house and its contents against events beyond your control such as fire, floods, lighting strikes, windstorms, hail and even theft.
2. You have something to fall back on in unforeseen circumstances: In case of damage you get money to repair or rebuild a damaged home so you can continue to live there  or move somewhere else instead of rebuilding.
3. Protects your lifestyle:  if you take proper and prior insurance , it will enable you smoothly get back into your earlier lifestyle using compensation from insurance companies

Where does insurance fit in Early retirement plan?

Well, Personal finance consists of three different aspects:

• Generating Wealth through a job or business,
• Accumulating Wealth through savings and making the right investments,
• Protecting Wealth– Protecting what you have by insuring it, so that all of a sudden you you do not lose what you have accumulated over a period of time.

Insuring your house comes under protecting your wealth.

Types of Home Insurance available in India

For the past 3 years we were taking a Re-Construction home insurance for our apartment.  The major issue with this insurance is it only insures the value equal to the construction cost of a house.

Knowing that 3 years back, I was a bit shocked because construction cost was only ⅓ of my apartment’s market value. I wondered what I will do if something does happen to my apartment.  I would be left with no house and with reimbursement of just ⅓ rd of its actual value. That is not enough to buy a new apartment. 

The other problem with re-construction option for apartments is that all the owners have to agree to demolish the entire building complex and rebuild it from scratch. But if only your apartment was gutted like in my parents’ building example, you would be out of luck even if you have insurance. 

Re-Construction option is better suited for independent houses where one owns the land under the house and there is only one house built on top of that land. It is not suited for apartments.

3 years back there was no other option because insurance companies did not cover market value of your  apartment back then. But this year i discovered Agreed Value insurance.

If you live in an apartment complex you can opt for agreed-value option which insures your apartment at the agreed market value. It has to be a reasonable value, that in case of claim should corroborate with the then going market rate. One caveat is that if you want the full insured amount you have to hand over your apartment to the insurer. With the amount you receive in return you can then buy an apartment elsewhere. If you only want to do repairs and live in the same apartment then the claim will be paid on reconstruction cost basis. Source

Other add-on covers to home insurance : 

Home insurance primarily covers the structure of the building. There are other add-on covers that protect your high-value contents from damage & burglary, temporary rental cover, water damage cover etc. We recommend you first insure the structure and choose add-ons only if you absolutely require it.

6-Steps to buy an Home Insurance

1. Take out few hours over a weekend to research – this is usually a one time exercise. In future you just need to renew your insurance annually
2. Establish the value of your house and its contents – put reasonable value because your premium is derived from the value you are insuring. At the time of filing claim insurance companies can dispute if they find you had inflated the value of your house or its contents.
3. Compare home insurance from top insurers on following basis:
   1. Check their premiums and coverage
   2. Claims settlement ratio
   3. Company’s reputation
4. Most Importantly read the terms and conditions of your insurance: To avoid any misunderstanding on your part about the policy coverage do read and clarify the policy T&C.
5. Understand the policy Exclusion: This is very crucial. Understand very clearly what is not covered under your home insurance so if needed you can buy an add-on.
6. Go Online and buy (saves you commission): In case of doubt call customer support centre for help. Sometimes it is better to call the local office number of the insurer as they may be better-informed than customer-service reps. That was my experience.

Good articles about Home Insurance

• New home insurance plans are much better
• How to buy a home insurance policy

Conclusion:

Home Insurance is a very useful product about which there is very little awareness. There is a lot of conflicting information on the Internet. Sometimes even customer-service reps of the insurance companies themselves give out wrong information. We hope other financial journalists launch an education campaign like they did for mutual funds & health insurance to clear all doubts and gotcha clauses. We’ve done our small bit 🙂

Home insurance helps an individual to protect their house from risks beyond their control by compensating some amount for the losses. Risks can be either natural or also man-made. Anyone who owns a house or rents a house must take suitable insurance to protect their wealth and peace-of-mind.

Please share your experiences with home insurance in comments. I’m interested to know if anyone has filed a home insurance claim successfully.

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Subscribe by E-mail for more awesome information on Early retirement, personal finance and our life in Goa!!. We publish one new post every week!!! Its Free!

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