My grandfather never borrowed for anything. His guiding lines for me were – Using borrowed money is like fuelling the fire using hay, it burns fast and gets consumed quickly but when we want to repay we will be paying in firewood for the same volume of hay which could have served us much more. Another mentor quoted a text when I wanted to buy a flashy car much in my early career – We buy things we don’t need, with money we don’t have, to impress people we don’t like.

Both those texts are my guiding lines for debt management now, but adopted it much later when I learnt it the hard way. Two of the biggest purchases in one’s life, a house and a car, often don’t stop at needs but end up as a status symbol. People love to show that they have arrived and achieved. In reality no house or car is big or luxurious enough over time. So people go all out and buy things that are not affordable. Loans were initially meant to lent out to people seeking business capital. Those were risky so banks turned to milk the retail borrowers – ‘us’. Affordable loans are oxymorons, if you are going for a loan to buy something then you cannot afford it.

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Negotiating for big purchases with cash in hand vs taking loans has a big difference. We are hard on our future selves but care for who we are today so the cash in hand looks heavier and hard earned while the loan repayments broken down over the months in the future looks small and affordable; inflating the overall demand and reducing the willingness to negotiate.

When we buy larger than our needs, we commit to a monthly outflow which we cannot afford to skip because it will bite back with more penalties. This is the single biggest factor which contributes to workplace stress; people put up with toxic work cultures, long working hours and bad bosses in the fear of losing the lifestyle they signed into.

On the contrary, if we save up for paying the big purchases we will negotiate hard with the money in hand, we will not be a victim to the need of hefty monthly payments, which gives the clarity of thoughts to take crucial career decisions. You can buy a dream house by SIP route within 7-8 years of saving the same money that we will be paying for 20 years for a home loan. Once I was in a car showroom where I observed a guy talking to the salesman for the model he wanted.

Salesman: Please let me know what is your monthly salary, I will let you know which car you will be sanctioned?

Buyer: I wanted the top end model, in that specific color and rims.

Salesman: In order to proceed I need to know your ability to pay month on month, I can work out the interest rates and tenure:

Buyer: Gives a cheque and says – Fill it with the price that you are offering that will make me sign and drive the car out.

The salesman was stumped and the buyer negotiated almost 10% off the vehicle.

Debts are for businesses to quickly turnaround profits and not for building assets over 20 year loans. Try the no debt strategy, this means you will have money in your account you don’t know what to do with. This is the first step in being financially resilient, there is no pressure to pay huge bills month on month. The next thing is to resist the urge to spend and build up moveable assets. More on subsequent posts.

Early 2000s in India had a lot of Public Sector Undertakings (PSU) float a voluntary retirement scheme popularly known as VRS. If you choose to live in a Chennai suburb in your late 40s or early 50s with no loans and a house to your name, then the monthly recurring expense of 5,000 rupees with some set aside for additional expenses like repairs, medical etc annually amount to about a 1,00,000 rupees. The VRS plans gave a mouth watering deal of 15-20 years of annual expense. A lot of people who opted for this were in the middle management who were bored of waking up to go to office everyday. Most of them had a thought of becoming freelancers or do simple jobs to keep up the cash flow and not disturb the nest egg.

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The reality was harsh, I have first hand information from near & dear ones and neighbours. The problems I observed were that

  1. Skill was not up to date in their field as a lot of them were middle management.
  2. Lacked the marketing and networking skills needed for a freelancer, unable to advertise and convince businesses to give them work.
  3. Did not understand uneven cash flow, inflation, investment diversification etc as they always had ever increasing salaries paid monthly, their entire corpus was bank deposits.
  4. Continued with their pre-retirement high income lifestyle.
  5. Did not cover themselves with medical insurance, one critical illness away from bankruptcy.

A majority of them ran out of their retirement benefits within 6-7 years when they were hit by inflation – medical, food and education went faster than retail inflation where the interest rates were lagging behind. From being their own boss they had to take their kid’s help to live peacefully in just a short span of a few years. They were not able to find jobs as a free lancer; even if they did, they didn’t manage to break even. They also felt too shy to cut down their status symbol items in front of their near and dear ones.

Unless we have a passive source of income like a rental income or income from an established business/equity that can grow with inflation and cover monthly/annual expenses comfortably, it is very hard to achieve financial independence through a retirement corpus alone. A lot of FI/RE (Financially independent, retire early) blogs explain that we need to have a minimum of 300 times our monthly expense or 25 years of annual expenses in the corpus to achieve that. These have been inspired from low inflation economies not for India, I had observed that what looks good for 20 years in India usually runs out within 6-7 years.

Financial independence for a regular salaried citizen is extremely hard, especially for the people I observe who are on the consumption based economy, are encouraged to take loans for their purchases. What we need to plan for is financial resilience. More about it in subsequent posts.

In a king’s court, there was an argument that people get what they seek. If they seek luck, they get lucky. If they seek food they get fed. The king had to break this argument so he orders an experiment. Get one person who believes in luck and get one person who believes in hard work. Let us lock them up in a dark room with food and see what happens.

Two of the identified people one believer in luck called lucky man and one believer in hard work called worker both are locked up in a room where some food and water is kept at a slightly hard to reach place. People outside can observe the conversations. Over a few hours, both the prisoners got hungry. They started to debate about their way of something good happening to them. The worker did not spend time arguing much. He began to explore the room and tried to reach out for if anything was placed for them. The lucky man told him that his efforts are waste, this is an experiment and they will sure be released and fed something.

The worker found a box full of peanuts, he was very elated and started eating. Instead of sharing the food, he mocked at the lucky man. He did not stop there, in the box of peanuts he also found some stones he threw them at the lucky man saying you can eat these if you feel lucky. The lucky man laughed and kept the stones thrown at him anyways. Few hours later the room was opened and the content worker came out along with the tired looking lucky man.

The courtiers who batted for hard work were very happy, just then the king asked the lucky man about how did he feel. The lucky man reached into his pockets saying he got some stones by doing nothing. When the courtiers saw the stone they gasped, because they were gemstones not mere stones. So the king declared ‘people get what they seek’.

This story was confusing for me because I immediately drew parallels with laziness but the crux of this is ‘What you seek is what you see or get’. This is so true in both our personal and professional lives that we will be able to pile on instance after instance, evidence after evidence to prove our point of view about something or someone.

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When we grow up from our being an adolescent to an adult the things that we were subject to has to become more objective. Example a teen is subject to peer pressure but a grown up can distance from it and see it as an object. Similarly irrespective of our age or development we are subjected to winning be it playing a game, having an argument or even doing something small. This primes us to seek what will make us win, while this is useful while playing games it is not useful when there are disagreements and needs a dialog to sort out.

We need to be deliberate in our actions sometimes, which can be achieved through reflections. This will make us realise the subject/object relationships of us and make adjustments towards more objectiveness. If we seek snacks of victories, we get it; if we seek gems of wisdom, we get it.