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It is increasingly annoying to visit any place and be assured that you will get good service at the right price or as advertised.

Scenario 1 (Major MNC Bank) – A bank approached me saying that if I hold a salary account with them then I get preferential treatment which means lower interest rates, locker facilities, no pre-closure charges on loans etc. It was on their website, I ended up converting it to the salary account. Surprise 1 – I wanted to pre-close my loan and they said I need to pay a fine of 5% of outstanding (it is flat rate, much more than I will pay interest for remaining instalments). I called up the relationship manager assigned to me and he cooly said, in the fine print it is written that you have to pay a fine, we can waive you for any new loans you take from now. Surprise 2 – I wanted to get a locker, I was slapped with a requirement of taking a useless insurance product with them with a lock in of 5 years. When I pointed them the ad, they said “it is for RBI compliance; we can add you to the waiting list if you wanted as per RBI guidelines”. I got the waiting list number after threatening them about an ombudsman complaint.

Scenario 2 (Multi national car brand) – I took my car to a reputed brand’s service center. The service engineer asked me about the complaints which I did not have any. He proceeded to fill a lot of details in the complaints section like A/C, Air filter etc. I pulled out the user manual to cross verify and it was recommended to be done only after a year not the current service cycle. When I pointed out, he sheepishly smiled and removed the line items saying all customers want their cars in pristine condition so they go for it. I thought he removed all additional items but when I went to collect the car I was billed an additional 1500 rupees. To my shock, he had written A/C cleaning twice and struck off only once; he mentioned that I had signed after reading through all of them. I then threatened them that A/C cleaning is not a complaint in legal terms and it is a customer request which has not been put up in appropriate column so I can take this up with consumer court. Immediately these guys relented and reduced the bill.

The list goes on I was denied insurance claim saying it is a fraudulent claim and then I approached the ombudsman who awarded the case in favour of me. The restaurants waiting for you to open the bottle on the table and then slapping 200 rupees for mineral water which was not told you anywhere. The medical shop switching generics for branded ones which are sometimes 3-4 times expensive.

My advise is to know your surroundings and your rights. It is not possible to read all the fine print but do not allow people to take you for a ride.

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swiss_cheese_model_of_accident_causation

I often get into a debate with people about the type and the extent of testing that has to be done for software. One of the key arguments I hear is that developers should focus on creating only the happy path and leave the rest to the testers to find or have SDETs write extensive automated tests while developers can skip unit tests and focus only on writing useful code.

I have used the swiss cheese model to explain to people about the need for layered coverage instead of concentrating all the effort onto one layer. I first heard this term while watching an air crash investigation episode in nat geo. The narrator explains that though there are millions of parts in commercial airliners, the chance of getting into an accident is far lesser than motorcycles.

How an aircraft with millions of parts is able to get back on to the sky within a few hours after landing from a long trip? The answer lies in layered testing. The pilot has a pre-flight checklist, the ground staff do a routine check for visible damages, the maintenance crew notice the hours of usage and do preventive maintenance, there is a strong network of weather monitoring and routing, ATCs manned with trained staff and modern radars, aircrafts fitted with collision avoidance systems, a long series of protocols for ground and sky movements etc.

It is the same across many engineering and medical disciplines. The risk of something slipping through all the layers of test is very rare and if it happens then it is immediately plugged. In software engineering it is a combination of static checks, unit tests, integration tests, automated ui tests, heuristics & exploratory tests, performance tests etc. No one type of test can be removed altogether and replaced by another. We need the layers to move fast and yet deliver what is required.

Image courtesy: Davidmack, Swiss cheese model of accident causation, CC BY-SA 3.0

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When you open the newspaper in the morning, mostly the front page ad will be by some builder luring buyers with a remarkable investment offer that is bound to appreciate in value with unheard levels of return on investments. One question I always wondered about was ‘why don’t these people hold on to their assets instead of selling if the prices are always upwards and skyrocketing’.

Many of the investment opportunities are nothing but spending disguised as investment. Buying a new flat involves taxes, registration, premium, loan fees, interest etc. It is good to buy one to live, but buying solely for investing that too on loans is nothing but a huge spend. We have grown up to see property yielding good returns, but that was largely due to the developments and migrations that happened to some of the cities. Stories of selling inherited houses and making a fortune were told to us which primed us into thinking that buying a property is an investment.

Investment is something that always carries a risk, for example cost of property during 1980s in North Chennai suburbs (like Minjur) and South Chennai suburbs (like Urapakkam) were same, but people who invested in the south reaped the benefits. The risk here was non development, the risk surfaced for some buyers and they ended up just getting inflationary returns. Investment needs knowledge of the market, environment, a bit of knowledge about the economy, a good amount of time and some dose of luck. There is a lesson for investing, do not put all your eggs in one basket but property is such an investment that it is a large egg which sucks up all your savings and locks it up.

Savings does not carry a big risk, but in the long term it definitely erodes away with inflation. Savings can be treated as a low risk investment with a very less return on investment, does not require much market knowledge, it is to cater to short term finance cushion. One should have around 3-6 months of expenses in readily drawable savings, anything more will be eaten by inflation.

What is safe then? Nothing is safe, we need to spend prudently and at the same time invest and save in different baskets to offset the risk of exposure in one area like real estate to the other like stock markets. Don’t succumb to greedy marketing and planned obsolescence, many things last really long.

Baskets for savings (immediate liquidity)

Bank deposits (fixed or savings bank), inflation will eat it over time.

Hard cash and foreign currency, if you travel often. Forex might move with inflation but hard cash will be eaten by inflation from day 1.

Gold, it can be held long as it does not lose too much value but gives less RoI.

Baskets for investments (Risk involved, but always pays over long periods like 15-20 years)

Stocks & mutual funds, equity should be held very long to reap the benefits of compounding and shield from short term market fluctuations.

Plots & farm lands in the fringes of the cities, will take a long time to sell and depends on the development around. If you are lucky could land in a major windfall.

Rental real estate, only if the rental yield is around 7+ % of the cost of the purchase and that too purchased outright without loans.

Spendings

A comfortable house in a locality that brings peace,  when bought on loan; should not burden more than 40-50% of family income as it has a long repayment period. Keep in mind the high costs associated with registration, taxes and fees. Long term returns in the current market conditions pegs flats bought on loan to perform the worst in terms of RoI, treat it as if you are buying a car for yourself not an asset.

A good vehicle, as many people commute a lot. Better to avoid a loan and go for outright purchase which will make people negotiate hard and keep the existing vehicle for long. If you go for a loan then buy only if your outflow is around 20% of your family income and you can finish it off in 2 years.

There are plenty of marketing going on to make us spend a lot more than necessary like changing home appliances every few years, expensive and lifestyle brands etc. Create a budget for spending and try to stay within it as much as possible. Your spending budget per month is best limited as 3 times the rental rate in your area. The rest should be saved and invested.