Middle Class: Need to change the conventional approach

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  1. Please correct me if the following information is wrong. On 10 January 2008 Sensex was 21000. Today it is 38736. So it’s 5.75 percent returns, which is less than the average inflation for the period.
  1. People always give examples which suit their thesis.

Even this calculation is also in same league. My point is, like in life while in driving, you can not only look in rear view mirror and drive. 95 percent of time you will have to look in front and only 5 percent of the times you will have to use the rear view mirror

  1. As Warren Buffet says, ‘If only past was to the game, then librarians and historians would be the richest people.’ What has worked in past cannot be extrapolated in the future. It’s never that simple.
  1. Last 5 years middle class has been short changed. The gap in 2010 to 2013 between lower class and middle class was high and increasing. The real estate prices were increasing so fast that even middle class thought that they will be never be able to buy a flat or house. And then in 2013 Affordable Housing Policy Launched 1 bhk flats in Gurgaon  & 2 bhk flats in gurgaon
  1. So under pressure from their better halves, they bought whatever suited their budget, without due diligence. They were mostly going to be stuck in Greater Noida, Greater Mohali, Faridabad Nahar par, Zirakpur etc.
  1. The lower class never even dreamt of owning a house. This dispensation is not working that way. The bottom up approach is bridging the gap. It’s good for country in long term as poor should not be left far behind. In 2013 Affordable Housing Scheme Gurgaon Launched .
  1. As it can have law and order issues. So111 what the State does, we have no control. We can and should do what is in our control. The rich do this adjustment beautifully. That is why they are rich. Their taxes have increased in this budget but they will not cry like middle class. They will see new opportunities and do something about it.
  1. Having set the preamble now, I will tell you that over last 2 months I have been able to decipher few issues. I will be putting it as statements. Giving some justification in some cases, or none. Each is well researched and has potential to be an article in itself. And on most controversial and commentated upon statements I will post detailed articles subsequently. NormalIy, I do not request people to comment and give feedback but this time I will request for same. If the following breaks your long held belief systems, then comment below.
  1. Wives below 45 years need to pick up and do work.

I did not say job. The growing aspirations of middle class can no longer be met by single income, no matter what investments you do. Also, it will have other benefits than money, like the increased self-esteem of wife. In case she does well, it increases your choices also. So please encourage her.

  1. Do not make your kids study engineering if it is not from top 5 IIT or top NIT

We produce 11 lakh engineers a year, which is about 5 times more than USA and China put together. Their combined economy is 11 times ours. Most engineers are unemployable or end up doing 15 to 20 k jobs.

  1. Do not plan or save more than 3 lakh for marriage of a child.

Whether it is your daughter or your son, don’t spend more than this.

A simple function is enough. Your kid will do either arranged marriage or love marriage. If it is love marriage as such no pressure to blow up money.

In case arranged, if the other family is not in agreement and does kalesh, then take a call whether you want to marry your daughter there.

I am saying daughter, because if you are the parent of a son, and don’t want other party to spend, why will they have a problem? It’s normally a daughter side which is expected to do more. Money saved in above arrangement should be put in FD. Let’s say you saved 25 lakhs. Then first anniversary of couple give them 3 lakhs. Inform them and other family of this arrangement before marriage.

And this will be given only if the couple didn’t do any kalesh publicly and are nice to each other. No wife or husband beating no open gali, no drunken behavior. Second anniversary 4 lakhs. Child birth 5 lakhs. This money can be given this way as per my research for 8 to 9 years, by that time their marriage is on solid footing. Because other than infidelity, most kalesh is on money. You can’t do anything thing about infidelity, but rest can be taken care of. Basically you are incentivizing goodbehavior. So both set of parents give money as per their aukat and shraddha. Basically out of savings they made by not falling prey to society’s false idiotic expectation of spending money on wedding. Just remember its marriage which is important, not the wedding. Nothing can give you more dukh than child who is unhappily married or getting divorced. Wedding functions debrief goes on average till 3 years or birth of child whichever is earlier. Example- humari izzat nahin hui, Agar humari hui toh phoophaji ki nahin hui. Suit buaji ka achha nahin tha.

  1. Do not waste any money on kids higher education.

If your child is not pursuing IIT or IIM, then do not waste money in BBA

Amity or Manipal. Save that money. Bachhe ke hi kam ayega. Normal DU graduation is much better in market than all this. At least in DU child will become chatak because of Delhi ki hawa and friends.

  1. Mutual funds sahi hai.

But sirf mutual funds sahi nahi hain. I don’t see middle class making any money in SIP in next 2 years. Returning loan by increasing EMI is better option.

  1. For 2 children, if you don’t spend much on higher education and marriage, then savings can be close to 1 crore. Spending this amount on your kids with no assurance of returns is not love but foolishness. Imagine 25 lakh being spent on your child’s education and he landing 25 k job that too in different city. Saving of even 10 k will break, even spend cost at 250 months or 21 years. An OK salary will increase so say 12 years . Point is job she can get for 40 k even you making her do few smart courses of 2 months. If this logic strikes you

Connect for details and ideas.

  1. Do not buy a vehicle more than 4 months of your salary. And don't take loan. Please don’t say that I have to live my life. My take is, till the time you are alive you have no choice but to live. May be most are living like zombies that buying expensive things makes them feel alive for some time. Buying a car on loan is strict no. But if you still do then something else will be compromised. The cake that is earning is limited. That’s why refer my earlier point of wife working. But car toh mehengi tab bhi nahin aayegi since you will require 2 in that case.
 
  1. Do not buy a property for investment if it will give less than 7 percent as rent on initial cost to you. So a 13 lakh property should give min 7.5 k as rent.

The math for above, 25 lakh properties can never give you 7 percent. So corollary is for investment. Do not buy anything above 25 lakh. In Gurgaon we have 2 bhk flats in budget.

  1. If existing property is giving less than 4 percent yearly rent on its market value then please sell as it is overpriced. Do not get attached to properties which are not ancestral. If you don’t have to stay in a property then it becomes an investment property. If it doesn’t meet above criterion, then sell it. Even if loan is there and you have paid interest for 5 years and it is going at cost price or less, still sell. You may feel like a fool, but trust me if you don’t then 4 years later you will feel like a bigger fool. For clarity on this read, about sunk cost fallacy on Google.
  1. Do not buy a flat in a small town. Do not buy in your home town. If your ancestral house is in a decent place, then renovate it. If the place is below your class, make your parents sell it and make them a small decent one for them in decent locality.
  1. Hope the above gave you some fresh perspectives on some issues. What should be done will vary as India is a diverse country. What will work for a North guy won’t work for a South guy. Plus conviction has to be own.
  1. Middles class old conventional thought process of spending on children or child should change since times have changed.
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