Investing - Chapter 1

Having a home, a great family and earning a regular income is the goal for many. Most believe that getting a better job, a promotion with higher salary will help achieve financial safety. Sure it does help a little, but you get used the money quickly.

Lets take Ram, 23 yrs old and fresh out with a professional degree. He is smart and has a got a job with Rs 20,000 monthly salary. He is young, carefree and likes to have fun even if it means big spending.

At 27, still young, he is earning Rs 50,000/month. In these years, he has switched jobs. His tastes now includes IPhone, Samsung, Citibank, Nike & Toyota. He has some tax saving investments but nothing other than that. He has 4 credit cards which gives him discount from gas to groceries. He has been planning to buy an apartment which will cost Rs 5,000,000 (50 lacs). It looks a like a steep price.

At 29, he is married to Lakshmi. Both work and bring in little more than Rs 100,000/month. They are newly wed and have DINK (Dual Income, No Kids). They have bought an apartment for Rs 7,000,000 (70 lacs) with a 20 year mortgage of Rs 6,500,000 (65 lacs). One of their salary goes in paying for home mortgage and the other is used for home maintenance. They decide have child 4 yrs later, as they would like to reduce their mortgage before having the kid.

At 31, they have a beautiful daughter Arthi. Lakshmi wants to focus more on Arthi, naturally. Her focus on work goes down and they both accepts it. The interest rate on mortgage increases. The rice, wheat & sugar prices have doubled in the last 2 yrs and they are bringing in the same income of around Rs 100,000/month.

At 33, Ram's family expenses for a month is given below.

This is tipping point, the income-expense is in a balance. Any further expense will create major problems. But further expenses are on the way. Baby Arthi is 3 yrs old and they will need send her to school. They want Arthi to go to the best school in the town.

At 35, there is a big recession and Lakshmi looses her job. Its been predicted by economists that in life span of 70 yrs, there will be three recessions and one depression that you will face. Still, Ram holds steady and brings in Rs 75,000/ month. But the expense is more than income and they still have 14 yrs of mortgage to pay.

This is when Ram breaks down. He sells his house unable to pay mortgage. Tensions in the family peak and there are frequent arguments. He fails more often at work. From a star performer he becomes average. His life stagnates. This is called 'Mid Life Crisis', it happens so fast that Ram did not see it coming.

What went wrong here? Ram was bright, handsome and full of energy. How did he get into this hole? We will look at another story of Ashwin in the next blog and compare it.