Understanding life & Money

Partha was in a good mood. He was going to book a car today. He had been taking test drives of various cars for weeks now and finally had narrowed in on the Tata Harrier. The version he would go for would nudge Rs.23 Lakhs.

Partha would be paying some Rs.4 Lakhs from his kitty. The rest of the amount will have to come from a loan. This has been the story of Partha’s life all along.

He has three other loans, apart from the car loan. He has a personal loan which he had taken to assist his brother during his marriage. He has two other loans taken for purchasing an iphone and another for the holiday ( his family had gone to Europe ).

Leveraging future income – Partha earns well, north of Rs.1.7 Lakhs a month. However, he has not been able to save anything much. At 37, he has about Rs.5 Lakhs, all counted! And there are many loans pending. His networth is negative.

His expenses and EMIs take up most of the surpluses. With this car EMI and the fuel bills, he may struggle. That is what he is worried about ( but that has not stopped him from going for that car! ).

This is a story that plays out across the spectrum these days. People are aspirational. There is no problem with this. But aspirations are running amok and some serious money would be needed to fund their lifestyle, experiences, brands, gadgets etc. that now have become a necessity! And they don’t have that money. That is why they are taking loans which essentially is borrowing on income that is yet to be earned!

Cutting the coat according to the cloth is something such people have not heard. Everything is available on loan and can be had now. When we confront such people with the way they are living, they counter that this is their time to live. They cannot do all these in their fifties and sixties, they say. While that may be true, many people leverage so much that they just do not have any money leeway at all, with savings close to zilch.

Loans and profligacy – As mentioned earlier, loans are actually borrowing from the future income. It is a huge leverage on the sanguine assumption that there will be an income in the future. It is such people who were affected when there was a lockdown during Covid. Some of them did not even have enough to fund a few months expenses ( including EMIs ) with them! Even a decrease in the salary was catastrophic to some of them.

Then they resorted to blaming their company, government, lack of social security systems etc. Not for a minute people introspected about how they came to be in such a jam. If such people lose their jobs, they will be finished.

Lifestyle choices – Most people enhance their lifestyle much more than they can afford. They upgrade their locality, homes, gadgets, schools, brands, travel etc. higher than what they can comfortably
afford.

Many people proudly pose for photos with “their” home and “their” car. If they have taken a huge loan to buy these things, it is nominally theirs and predominantly that of the agency that has given the loan! But we all get taken in by the fact that we have bought a home or car!

It is aspirational and some feel it will make them work harder to achieve a higher quality of lifestyle for them and their family. But this can be tough. It will work only if there is aggressive growth in their career and income. But we know that life has its share of ups and downs. Operating without any cushion exposes them to turmoil and plunges them into a financial mess.

That is the reason we see Partha struggling to stay afloat on a Rs.1.7 Lakhs income. There are others who are earning way more but share Partha’s predicament! The only reason is their lifestyle choices.

Can’t get off the tread mill – Once the lifestyle has gone up, it is difficult to scale down. We have seen people struggling to keep up their lifestyles. It is worse if their situation changes and they really cannot afford it.

Children’s education is an item on which people do not want to spare any effort or money. They want their children to go to the “right” schools.

Once the children are admitted to “desirable” schools, everything goes up – the fees, what you spend on their uniforms, picnics, hobbies etc. Also, children will want their parents to act like other parents, who are taking them on a holiday to Europe, America and Antartica! Another high watermark set there!

Parents are seen as unsuccessful ( by their children ) as they do not have the wealth of some of their friends. Children themselves develop an inferiority complex. Read this…

Then there is the pressure of putting the children through “foreign” education, which parents see as their duty to fully fund. Today, anyone above lower middle class is aspiring to this!

All these means that the money stress does not leave during their entire lives, inspite of how much they earn. Many people change jobs to get better pay but that does not help as the problem is elsewhere.

Unhappy at the wheel – Lots of people who are earning handsomely are very unhappy at their jobs. The only reason they are at all is that they need that money to keep it all going, including the EMIs. How ironical that is!

They wanted to create a fancy life with amazing lifestyle and material comforts; but in the process they have imprisoned themselves in a job they don’t enjoy any longer ( and some positively detest ). Ironically, their life is filled with anxiety and stress despite the external trappings of success. Many such people want to run away from their jobs; but they can’t.

Band-aid cure – People expect a band-aid cure when they go to a financial adviser. They expect the adviser to somehow work their magic and make everything right. They even want their advisers to recoup past losses by investing “well”.

However, most of these people are reluctant to change any of what they are doing saying – “Won’t people at my level spend even this much on vacation, education, entertainment etc.” and expect their adviser to commiserate and endorse what they are doing!

People have unfortunately adopted all that is wrong with western culture ( like unbridled materialism, living on credit, hedonism, narcissism… ) while not imbibing what is good in their culture ( like pushing children to be independent, offering basic funding for college education over which the children take a loan and pay for it themselves ). This way, we have the worst of both worlds!

It takes an attitudinal shift to set this right. That requires introspection, will to change and corrective action. But it is easier said than done. However, in our own interest we need to do it, difficult as it may be!