It was only in my late thirties that I got interested in my finances. Prior to that, especially in my PhD years, I was pretty lackadaisical about how much I was saving. One of my professors used to say: “Some people know how money works; some people know how ideas work.” That, pretty much, summed up my own opinions on money.
When I was 37, I chanced upon the book Rich Dad, Poor Dad (1997) by Robert Kiyosaki. It proved to be a wake-up call for me. For one, it showed that money itself is just an idea and if we make up our mind we could do well in the money game as well.
Now, I wouldn’t endorse all the things that Kiyosaki advocates. He wants everybody to start a business and become entrepreneurs. He speaks with disdain about the salaried employee. But not all are cut out to be entrepreneurs. He also doesn’t seem to accept that a good education can make the struggle a lot easier.
Venturing beyond Kiyosaki, and fully aware of my own perilous state of financial affairs, I read many books on managing one’s money including David Bach’s Smart Couples Finish Rich (2001) and The Automatic Millionaire (2005); David Chilton’s The Wealthy Barber (1989); Thomas J Stanley and William D Danko’s The Millionaire Next Door (1996); Ramit Sethi’s I Will Teach You to be Rich (2009); and Vicki Robin and Joe Dominguez’s Your Money or Your Life (Updated edition, 2018).
All of these are excellent books but are focused on the credit-card-debt-laden zero-savings-oriented energy-splurging American consumer. They advocate investing in 401k plans and so on. They all, however, emphasise on the “Pay Yourself First” strategy and saving 10-15 per cent of the gross salary every month. These books convinced me that all those who talk about flashy lifestyles and “seizing the day” were, as the Texans say, “big hat and no cattle”.
I was looking for a good book on finances in the Indian context and one has come along: Monika Halan’s Let’s Talk Money: You’ve Worked Hard for It, Now Make It Work for You (2018).
Halan is well known as consulting editor for Mint and for appearing in several finance-related TV series on NDTV, Zee and Bloomberg India. In this book, she uses an engaging, chatty style to talk about financial issues. Her book is for beginners and relies on anecdotes and narratives rather than statistics and charts to make her point.
Right at the beginning of the book, she gives her rules for living a balanced life:
- Have a three-account system that separates your income, spending and savings;
- Spend no more than 40-45 per cent of your take-home income on living costs.
- EMI payouts should be no more than 25-30 per cent of your take-home income;
- Save at least 15-20 per cent of your take-home income.
As other books do, she advocates on accumulating an emergency fund of six months’ living expenses. She strongly recommends not banking on the employer’s medical insurance scheme but purchasing a “family floater” of one’s own while cautioning about the various pitfalls in choosing one. In addition she recommends a critical illness and accident cover as well.
She conveys very well her hostility towards the whole life and endowment policies that LIC dishes out. She says, “The way insurance has been sold in India, my guess is that you are sitting on a lot of dud policies. Why do I call them ‘dud’? Because they don’t solve any of your financial problems. These are products not designed to give you either a good cover or a good return.” The only way to insure your life is to go for a pure term plan. She advises, “The day you realize that it is in your best interests to separate your investment and insurance products, is the day you move solidly towards building your financial security.” (Italics in original.)
As regards investing, she says all her investments are in Employees Provident Fund, Public Provident Fund and mutual funds and recommends the same for all. She cautions us to veer away from fixed deposits, gold, insurance and real estate.
Real estate especially comes in for a dressing down, being termed as “a terrible investment at current price levels”. She goes on, “It is a horrible, clunky, chunky investment that has lots of costs, which people forget to add to the profit maths.” (Italics in original.) The only reasons people invest in real estate in India are: habit, black money and fear of the unknown.
As regards holding gold, Halan states that buying jewellery is not an investment since 30 per cent goes away towards making charges. “As of 2017, the smart investment decision is to buy the [gold] bonds issued by the Government of India; these bonds give you not only the full market value of gold when you sell the bonds in the future, but also a 2.5 per cent interest on your investment each year. All other ways of holding gold have a cost attached to them and do not give a regular return.
She goes into details about mutual funds to the extent that a beginner would have to know. She does not advocate individual stock picking and trading explaining that mutual funds allow automatic diversification. She also has chapters on wills and retirement. “How much will you need at retirement?” she asks. “At age sixty, you need between eighteen to thirty-five times your annual expenses at retirement to retire with the lifestyle you are used to.
“For example, if you are spending an annual Rs 12 lakhs at sixty, you need a retirement corpus of at least Rs 2.2 crores to retire, if you plan to eat up all the money and leave nothing to heirs. If you want to leave the entire corpus to your children, the same annual expense will need a corpus of Rs 4.2 crores. If you plan to leave half your corpus, then you are targeting a corpus of around Rs 3 crores.” (Italics in original)
Halan recommends that this can be done in steps: “At age forty, you should have three times your annual income as your retirement corpus already....At fifty, you should have six times your annual income....At sixty, or at retirement, you should have eight times your annual salary.” (Italics in original)
Even having broken it into steps, it is a formidable task. It can only be accomplished by a dedicated saver. It is reminiscent of the Prodigious Accumulators of Wealth (PAWs) that are mentioned in The Millionaire Next Door.
We sometimes wish we had read a book when we were 10 years younger. This is one of those books. I give this book a hearty thumbs up as it is one of the few books about the Indian saver.
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