Middle Class Miseries

Middle class wanna mimic the rich which is making them even more poor each passing day. Government will not stop taxing them, prices will not be constant like our salaries but dreams will become bigger and expenses will shoot up each day which causes financial distress.

Are you in a right track? Let me borrow your valuable time for clearing the clutter !!

It’s a wake-up call for everyone who is suffering

Let’s get started !!

There will be no straight answers for these type of questions, it depends on various factors like cashflows, city in which you are buying, long term goal, job stability and family financial condition.

If you are moving blindly with your emotional decision of just having a home to show up to the world. Then, you will just have a home at the end !!

Let us consider the probable factors to look at before getting into the decision making part.

Job Stability:

Gone are the days where single income source individuals are rewarded, everything is becoming outdated in a matter of time in this fast moving world. It is important to understand the stability of your job and demand for the skills which you are acquiring each day.

If you are bachelor and earning 1 lakh per month, no wonder your parents or some other relatives will suggest you to take home loan at an early age which will lock you forever.
Taking home loan is absolutely fine provided you have multiple sources of income or atleast you are pretty sure that if company gives pink slip, you can find the other one.
If your parents are having some good cashflows to support you when you are in a bad condition to repay the EMI, then pat your back, no need to worry even if you take home loan.
If reverse is the case, you need to support your family and parents going forward with single source of income, then I highly oppose them not to take any home loan in a hasty way with zero plans.
If you are pretty sure that you would be staying in the same city for longer duration of time, then it makes at least some sense to give a second thought about your first home.
If you are not sure about the location of work, then you must ask yourself whether it is okay for you to pay the rent in Bangalore (where you shifted recently) and home loan EMI for your house at Hyderabad (where you used to live). Employeers will never understand your pain and ask you to stay in Hyderabad & at the same time you will face a hard time offering it for rent for short period of time
I have a friend who is struggling to pay the EMI after increased interest rates and at the same time I have a colleague who is not even concerned about the increased EMI and happily paying. If we have enough income sources or financial stability, we will never face a single problem even if situations go wrong. It will become a complete disaster if you don’t have financial stability and took a loan burden which you can’t bear when things are not in your favour.
If you lose a job, if you struggle to pay the rent and match the lifestyle in the city, you can directly switch to hometown or remote area where rentals are very cheap and lifestyle cost or maintainence is far more affordable.
If you lose the same job with a burden of EMI having no other financial shoulder to support, you end up living in hell with the daily deadlines and need to suffer even for hand to mouth existence of money.

If you are not completely relying on job for feeding your family, then you have some leverage of taking home loan as a personal choice. If you are not in the top 1-2% of your profession and ready to buy a house worth of 1 Crore with a salary of 1 lakh just because it is offering you enough EMI leverage, not a good choice. If you feel that you are confident enough to handle the situations, then kudos, no one will stop you from taking. Plan your possibilities, understand the cycle and move on with your thought. If you don’t have leverage of confidence or financial support, stay by paying rent from your paycheck. If paycheck does not knock your door next month, there is always an option of lifestyle choice that we can make

Depreciation:

If you are buying house as a personal choice, then it is fine. Don’t mix investment rationale with personal choice by saying that you can make money. Don’t see the pre covid and digitalization growth and start assuming things will play out in the same way moving forward. Growth will not be same always the way it has happened in the past.

Flats are not assets, they are liabilities. They depreciate in value. There are few exceptions like it may become advantage to you if you are getting a flat at a good place which can give you good rent and good return on investment.
Before buying a flat, check the area and understant the rental demand. If tomorrow morning, if you decided to move away from the city, there should be enough demand for rentals which will nullify your EMI costs notionally.
If you are deploying 1 Crore amount on a property and if it is able to fetch 3 lakhs per annum via rent, your ROI will be 3%. Ask yourself a question whether that ROI is fine or not. If it is fine for you, then go ahead.
If you have the ability to buy an open land and flat, definitely pick th choice of buying an open land provided if you have experience in realestate in assessing the market rate and other factors. If flat rates double, open land rates will become 5 to 10 times on an average.
Flat value deprecates but land value will never. There are exceptions to both but in general this is the fact.

Tax benefits:

If you are buying a house or any other financial product just because it is having a tax benefit tag, then you are buying that because government tax rules are indirectly pushing you to buy. Tax rules will change tomorrow, then benefits are washed out. Never do that, buy the instruments that you wanna buy and invest in the things that you wanna invest personally and then arrive at tax rules and check whether we can show it as an tax exemption or not.

Just because government is providing low cost EV vehicles and tax exemption on top of it, don’t jump on purchasing them. Understand your needs and why you are mkaing that purchase before starting the gear.
Tax benefits should not become shackles to you. Avail it if you are anyway purchasing it but never purchase just because there is a benefit. It is like buying a product on discount for which I don’t have any intention of buying if the discount tag is’nt there.
People are trying to avoid paying tax by investing in a products which they don’t need and don’t understand.

Buying a house or staying in rent depends on various factors and more importantly it is personal decision in many cases.

Usecase:

Arun is doing job since 2 years and parents are insisting him to buy a house in the city where he is doing job and later it can also be useful at the time of marriage Arun shifted to city with his family. How should Arun approach to it?

Questions to ask:

Whether my job is stable?
Whether my family can support if my active income stops one day?
Whether I can support my family and match that lifestyle and manage finances for my kids eduction in that city?
Whether I am buying it as a personal choice or investment decision?
Whether I can convince my wife or future wife to go back to hometown if I don’t wanna be in the city and stay on rent for now?
Whether I can purchase flat again later if I don’t purchase now?
Whether it is a right choice to buy a flat if I have capability to buy open land at least in the small city?
Whether I can manage paying home loan EMI, property tax and maintainence?
Should I pass this flat to my next generation or what are the other wealth creation opportunities I have?
If rent and EMI are costing me same, should I go via paying 30k rent or 30k EMI? How can I handle if something goes wrong if I’m staying in rent and how can I handle if I’m paying EMI?
Whether I can bear the weight in my head of having home loan EMI or whether I can bear the behavior of landlord if things go wrong?
If my liquidate my money now with big decision, whether I can afford higher education costs to my children or whether I can afford marriage expenses?
Can I have enough retirement corpus when I retire and enough medical costs if some health issue occurs suddenly?

Takeaways to decide:

Huge loan gives great freedom, if you are happy owning the loan, not house, then go for it and plan other finances accordingly because house is a high ticket item.
If you are flexible dealing with people and shifting houses, paying rents, then you will own nothing even after paying rents for years but no need to think about money, if your next paycheck is ready, rent can be paid eventually.

In a nutshell, if you have the ability to afford two cars, then buy one. Till then, it is better to stay away from the mindset of having a car.

It is not the car or car EMI that is creating a problem, maintainence cost is increasing drastically now a days. Even if I purchase a budget friendly car in the range of 5 to 7 lakhs, maintainence and car insurance are taking away 30 to 40k per annum.
If a person is purchasing a car with car loan, add these costs in your mind and check how much will be your monthly expenditure adding EMI, maintainance and insurance.
One cannot deny the comfort of having thier own car but if you can’t afford it, never take it.
Relying completely on Ola or Uber completely is also not good if you are frequently travelling. Costs in cities like Bangalore and Hyderabad are unbearable.
If you are frequent traveller and aining for comfort & convenience, then owning a car is a better choice for you.
If you travel once in a blue moon but wanna rent that car experience, ola or uber will solve your problem.

Everyone cannot afford buying a car and maintaining it. If you feel that you cannot drive smoothly in busy areas or if you cannot focus because of your work tensions. Driver cost is additional burden to your thin wallet. If you are aware of everything and feel that having a car suits your finances and lifestyle, consider purchasing it but never forget insurance renewal. It will become a nightmare if something happens to your vehicle and you don’t have proper insurance to claim it.

Quality of education one cannot comprimise on but never assume and attach quality tag just by seeing the school or college posters or ranks

Education turned into business, it is harsh reality even if you agree or not.
As a parent, you need to think ahead of time and see all the possibilities. Whether you can afford educating your child in top schools and colleges right from the childhood and still do you have the money to send to coaching or courses if kids don’t get placed after 20 years?
If you cannot afford, set a prority and see whether I can send my child to masters if he is interested if I don’t keep on pumping the money in school and college time. Decide how you can provide quality of education with less budget.
Now a days, skills matter more than degrees. Check whether you can turn your child more skillful rather than just acquiring degrees. How can he or she standout from the crowd?
See what are the schools or colleges which imbibe ethics and values in children right from starting rather than treating them as marks generating machines.
Home schooling, personal care in education by investing time and checking budget friendly institutions will increase your probability of taking better decision rather than just going by names and ranks.

People who suffered due to lack of education will try to give everything to thier kids what they did not get, that is the key which schools and colleges are catching and looting money. It is not the mistake of parents thinking and institutions are doing thier own business and making profit by selling the dreams. It is important to consciously take a balanced decision with a vision, not with a blind folded eye.

Many people whom I encountered with don’t even have the idea or difference between wealth and profit. I was havig a hard time explaining them. It’s not thier mistake because finance is no one’s topic even in thier schools or colleges or in jobs.

Many are trying to make quick money or depending on job to make money. It is not a bad thing but people need to realise that money or profit that you are making today will lose its value over time.
To turn what you are earning into wealth, we need to own real assets or digital assets for longer durations. There is no alternative to that.
If your aim is to just make profit each year, then at the end of the day, you will only have some cash in hand to pass to your next generation.
Wealth cannot be built overnight whereas profit can be made overnight provided with skills and luck.
If you don’t create wealth or if you are atleast not thinking in these lines, hands of next generation will be empty and burden on them will increase more.

Save and invest smartly. See the opportunities around you and grab if it is unlocking wealth in long term. Profit is good but wealth is great. Your parents will have something to give you, your turn will arrive some day, what will you offer? If your parents did not give you anything, then take a stand and become the first one to offer something to your upcming generation.

Be hungry and invest time in learning, earning opportunities will anyway knock you.

If you have skills you can earn a high paying job if you struggle for couple of months. Great !! Creating passive income takes time, years or decades depending on your pace and perseverance.

Active income is necessary but it is not sufficient if you solely relying on it.
If you or your working wife or both wanna take sabbatical, how can you manage your finances?
If things like Chatgpt will eat away your job, which monthly paycheck will save you?

Start spending an hour or two to know what are you good at. See and research on the opportunities that you can fit in. Start something by giving it a try in your free time. If things go wrong, you always have your 9 to 5 job but if you start seeing some positive results, then ton of things will turn into your favour giving you freedom of choice.

I wanna end with a good note but I don’t want to paint a good picture hiding real facts.

Sadly, rents and EMI’s both are increasing.

Cost of services and car loans & maintainence, both are shooting up.

Education is no longer budget friendly and private schools also know the fact that middle class parents will never send their kids to government schools comprimising quality of education.

Wealth creation opportunities are becoming limited each day and people are also not aware of the rules and don’t know how to play it. Business folks know them, use them and create wealth for themselves.

People are busy landing to that next high paying job, it’s good but borrow some time and explore the ways to create passive income !!

Everything is interlinked here, try to connect the dots. Don’t take EMI if it does not fit your finances. If you are taking home loan EMI, postpone your decision of buying a car. If you can afford buying a car and mainintaining it without taking any loan, then go for it. Don’t try to match the lifestyle of someone and suffer yourself.

If a business man is sending his kids to school which is costing him 3 to 4 lakhs per annum, it implies that he can afford. Why you are living in an illusion that you coming from a middle class background can also afford the same thing and trying to fit into someone’s shoes. Pick what’s best within your budget.

Wealth cannot be built overnight, if you don’t wanna at least think today for opportunities. You will never get the time to think later. Remember, if you provide everything to your family whatever you earn and left with nothing when you pass on to the next generation. Life becomes really hard for them, sacrifice your home or car or some part of education to create wealth for them. Single formula never solves all the problems. No personal finance brochure will fill all your gaps. Take some time, manage everything at your pace and comfort.

List is not exhaustive, some people have a dream of owning latest iPhone, some wanna go for a world tour, some wanna celebrate thier marriage by putting all the eggs that they have. List never goes on buddy. You have every right to have such dreams, life is not always calculations and money. Just plan and think how you can happily achieve what you want without living in a dream saying that you can manage when time arrives. If you can manage them now, you can manage them later. If you cannot manage them now, having solid plan can help you. Without any such plans, you will have hard time buddy.

You can live better life, implement what you are thinking, be good at what you are doing, make money, invest wisely.