31 from Bangalore, planning for FIRE

[cyborg]

Hello All,

Feels nice to be part of the forum and having so many like minded people around. Let me introduce myself and my plan for FIRE briefly and hope to get lot of insight from the people who were there and have done it.
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Age: 31, Married, DW: 30 ; One child aged 2 years
Both working and at the initial stage of career (Both PostGrad, working for last 1.5 year)
Location: Bangalore, India
Income(Combined) : 49,200 USD PA before tax
Tax rate : ~ 15%
Networth till date : 74,000 USD (Incl. everything)
Breakup of Networth will be at the end of the post.

Property which we may inherit in near future: Agricultural Land worth 40,000 USD.

Yearly expenses: 4800 USD

Loan: NIL
===============================================
We are saving aggressively and plan to get FI as soon as possible. Hence all the income/dividend/interest generated are going back into the net savings.

Lets get into the Networth breakup:

1) Real Estate (Own): 8720 USD
2) Retirement Fund (Provident Fund) : 7680 USD
3) Debt Fund / Bond / Fixed Income (Earning 9.5% interest PA): 38,000 USD
4) Equity Fund / Direct Equity: 6000 USD
5) Gold/Silver: 9220 USD
6) Other Depreciating asset/ Interest free credit : ~6000 USD
7) Cash : ~ Rest

=================================================

We understand that inflation is india is the killer and hence would like to create the networth keeping the worst case scenario possible.

So questions for which we are seeking answer:

1) Money management (Asset allocation)
2) How much money will give us the comfort?
3) What kind of emergency or protective measure we should build up?
4) and most important one, at what age we should be able to get FI?

At this point of time, We are not much thinking about taking off from the work but certainly once the FI is achieved, we can think of.

Thanks

 

[5971]

Wow. Yearly expenses of $4800 USD! I am envious.

If you max out retirement contributions how much do you have left over per year?

 

[cyborg]

The income(Combined) doesn't include the retirement contribution or any other income (interest income for example)

So last year we saved almost $ 35,000 USD.

Further, the yearly expense includes the rental outgo which will increase 5%-10% PA as well as the real inflation which is somewhere around 12%.

 

[retire2020]

Do not know much about investment options in India. Please follow this thread and few other posts from Desigirl which'll give you lots of ideas. http://www.early-retirement.org/for...a-couple-late-thirties-with-2-kids-48620.html

 

[JoeWras]

Welcome cyborg.

Normally, we say "run it through firecalc", but in your case, maybe not. The numbers are very western (specifically US) economy based. The future and history of the Indian economy is more fuzzy. I presume you intend to stay in India and invest your funds in the Indian economy, right?

You are wise to worry about inflation. I know your costs currently may be only approx. $5k USD, but I'm not sure that is sustainable. I take that partly from some discussions I've had with coworkers from Bangalore. It is always great to chat with them when they come State-side.

One of those coworkers shared that housing has really shot up in prices. It is not uncommon for people to pay $100k to $500k USD. A look at some real estate prices on the internet shows housing surprisingly expensive compared to wages. I had to see for myself to believe him. (It was a good exercise for me as I learned what a lakh and crore are.)

Do you have a mortgage?

The other thing that my co-worked mentioned is that there is also a hidden cost in many things. Real estate is one of them. He talked about having some extra cash a briefcase when he was buying his house...

My advice to you right now is to very carefully track all your expenses and net worth for the next few years and see how the trend goes. Keep your ear to politics and the path of the Indian economy. The Indian economy is very much out of our news here so it is hard to track. We get a lot more information about China and Japan economies than India. I'm sure you have local sources to track such things.

----

P.S. One other path for FIRE is to do what many of my coworkers have done. Come to US, earn US wage, live frugally, and go back home ready to FIRE. I don't know all the legalities of it, but I do know a few who have done it.

 

[cyborg]

Thanks for the detailed reply. I will put all the related local information alongwith answers for your Qs, so that it will be of some help to others too.

Welcome cyborg.

Normally, we say "run it through firecalc", but in your case, maybe not. The numbers are very western (specifically US) economy based. The future and history of the Indian economy is more fuzzy. I presume you intend to stay in India and invest your funds in the Indian economy, right?

Yes, I intend to stay in India but Invest fully in Indian economy, not sure about it. I am open to invest anywhere if it is actually better for my goal.

You are wise to worry about inflation. I know your costs currently may be only approx. $5k USD, but I'm not sure that is sustainable. I take that partly from some discussions I've had with coworkers from Bangalore. It is always great to chat with them when they come State-side.
One of those coworkers shared that housing has really shot up in prices. It is not uncommon for people to pay $100k to $500k USD. A look at some real estate prices on the internet shows housing surprisingly expensive compared to wages. I had to see for myself to believe him. (It was a good exercise for me as I learned what a lakh and crore are.)

I think it is safe to assume that the living expense can go up with 15% inflation YoY basis. Agree with your apprehension on the sustainability of my current cost structure.

Housing / Real Estate is going through some bubble phase here in my opinion and busting of this is not anywhere near due to many local dynamics involved.
People take 20 years loan to fund their 2 bedroom apartment and the EMI is easily equivalent to their 40-60% of their monthly income.

Do you have a mortgage?

Fortunately, I don't have any mortgage. I have purchased a residential property in Tier 2 city without any loan.

The other thing that my co-worked mentioned is that there is also a hidden cost in many things. Real estate is one of them. He talked about having some extra cash a briefcase when he was buying his house...

Yes I tell you all the hidden cost involved here. For any Real Estate transaction, there are 2 parts of money get exchanged, one which is white and shown on paper and other which is black, dealt all in cash to avoid the tax. Another problem is of corruption at every stage of transaction, though it has come down with all the e-facilities opening up.

Another insight why the property prices are all jacked up: It involves a significant amount of black money mostly parked by the politician & people like that. Those money doesn't seek any return except the safety of it and turning their color into white.

My advice to you right now is to very carefully track all your expenses and net worth for the next few years and see how the trend goes. Keep your ear to politics and the path of the Indian economy. The Indian economy is very much out of our news here so it is hard to track. We get a lot more information about China and Japan economies than India. I'm sure you have local sources to track such things.

Thank you for the detailed answers and advice.

----

P.S. One other path for FIRE is to do what many of my coworkers have done. Come to US, earn US wage, live frugally, and go back home ready to FIRE. I don't know all the legalities of it, but I do know a few who have done it.

Hehehe. Yes I know (Many friends of mine is doing that though not specifically for FIRE but yes to buy some of those highly inflated properties) . But this is not the option for me right now but may be in future.

 

[walkinwood]

Welcome.

I'd like to add to what another poster said about Firecalc. Most of the SWR studies have been done using historical data from the US stock/bond market. And it will DEFINTELY not apply to you.

Pfau & some others have done a more global study, but I don't recall seeing India in those studies either.

I have a friend in India who retired early. He has an equity/bond portfolio & a small real estate investment beyond his residence. He based his plan on his portfolio beating inflation by 1% a year.

You're young. Much can change in a fast growing country. A financial cushion is a good thing even if ER is not in the works in the near future.

 

[DesiGirl]

Welcome Cyborg.

Good to see another Desi in the forum.

Wow $4800 expenses with rental (2.5 L per annum or 20K p.m. in Rupees) I do not know how you do that. Your expenses will seriously shoot up as soon as kid starts going to school (or if u have another baby). In Hyderabad it would be 40-50K p.a. for a almost free school like Bhawans or KV (Just transportation, books, uniform, activities etc.) and for middle level school like DPS you are talking 80-90K (with home packed lunch)

Also you have to seriously consider how much you are willing to contribute for child's studies. (In India at least till undergrad is on parents) We know crazy Indian inflation so even I struggle with appropriate withdrawal %.

Link to m intro is already mentioned in the thread, feel free to ask any specific questions. Best of luck with your plans.

-DesiGirl

 

[JoeWras]

Welcome Cyborg.

Good to see another Desi in the forum.

Wow $4800 expenses with rental (2.5 L per annum or 20K p.m. in Rupees) I do not know how you do that.

-DesiGirl

Thanks for confirming the same surprise, DesiGirl. My co-workers from Bangalore are also surprised by such small expenses.

 

[cyborg]

Welcome Cyborg.

Good to see another Desi in the forum.

Wow $4800 expenses with rental (2.5 L per annum or 20K p.m. in Rupees) I do not know how you do that. Your expenses will seriously shoot up as soon as kid starts going to school (or if u have another baby). In Hyderabad it would be 40-50K p.a. for a almost free school like Bhawans or KV (Just transportation, books, uniform, activities etc.) and for middle level school like DPS you are talking 80-90K (with home packed lunch)

Also you have to seriously consider how much you are willing to contribute for child's studies. (In India at least till undergrad is on parents) We know crazy Indian inflation so even I struggle with appropriate withdrawal %.

Link to m intro is already mentioned in the thread, feel free to ask any specific questions. Best of luck with your plans.

-DesiGirl

Hi DesiGirl,

Thank you for the comments ! Since you have also surprised with my exp, let me go in some details on how I do it. Will write down my monthly exp in INR terms.

1) Rent ( 2 Bedroom-Hall-Kitchen apartment fully furnished ): 10500/- ( Excluding water and electricity charges)
2) Water & electricity : 650/-
3) Grocery: ~ 5000/- ( 3000/- given by MegaCorp as Sodexo Coupons)
4) Outside food: ~2500/-
5) Phone & Internet exp : borne by MegaCorp
6) Medical Bill : borne by MegaCorp
7) Petrol Bill: borne by MegaCorp
6) other exp ( Per annum Clothing: 20000/- ; Others: 25000/-): ~ 4000 monthly.

So here is how I manage my exp within 20k per month.

Yes, Child's education will be a major exp in the future.

 

[JoeWras]

Well then cyborg, when you are gone from Megacorp don't forget that you will now pay phone and petrol.

And when Megacorp feels a pinch, they may stop paying for some perks. Happened here in US. May happen there if your labor stabilizes. I think right now they are using it to help keep employees from jumping.

 

[cyborg]

Yes Joe, you are right !

Let me add the other bills borne by MegaCorp:

1) Petrol: ~3500/-
2) Telephone & Internet : ~ 3000/-
3) Medical : ~ 1000/-

So yes, 7500/- more and certainly I can reduce my exp for the first 2 items.

 

[DesiGirl]

So if I understand correctly out of the 25000 p.a. for misc expenses (or approx. 2K pm) you take care of maid, cooking gas, personal care & cleaning products +grooming (hair cut, beauty parlor etc.), socialization, festivals, gifts & daycare for the young one, travel+ vacation etc.
That would be again more WOW!!!

How do u know how much you have spent and saved? EPF contribution is taken from salary but do you have SIPs / RDSs (Systematic Investment Plan into Mutual Funds & Recurring Deposit Scheme in banks) or some other mechanism to guarantee that relevant amount is saved. Also do you use Money /Quicken/ Excel or some mechanism to track your expenses or at least control the amount of withdrawal from your salary accounts ? (these days I do not know the breakout of expenses any longer but DH withdraws X amount for a month and that is all we spend, No ATM or credit card expenses)

Accurate tracking & prediction of expenses is critical for success of ER or even Retirement at any age. Even though I have a feeling that you may be under-tracking some of the irregular expenses but if you are actually living within the set budget ..more power to you. I just would want to be very very very sure before making any big decisions.

-DesiGirl

 

[cyborg]

Let me start with saving / investment and tracking.

Yes I do my expenses tracking in excel and I have full log of every detail of expenses for last 1.5 years.
So the data which I have with me, gives me a great insight on where do I spend more and even what are the actual inflation rate which is hitting me.

I don't do SIPs/RDSs. I am en equity guy but always looking for right equity investment. If I don't find any, I leave all cash into debt funds.

Lets go back to the expenses. Yes you are right that may be my expenses are low currently but it will increase significantly if I start spending for some luxurious vacation and all. We don't employ maid.

Socialization ? Why do we need to spend big money on that? Certainly we visit our relatives and go on some places for trekking and all but believe me it is not at all expensive unless I book a ticket with airline for a one night journey which can be done by trains.
Coming to beauty parlour/grooming: My DW shares the same value/thinking. She goes out for parlour once in 3 month for hair cutting and the bill is 250/-. Rest of the things she takes care @ home.
Daycare/Kid Expenses: Currently none. Borne by MegaCorp

So yes, my expenses are low due to many factors and I think the most important one is the same shared understanding between me and DW. We aim for FI as soon as possible and doing whatever it takes. The lifestyle we have, may not be followed by many but sincerely, We are very much comfortable with our lifestyle and intend to cut more on the unnecessary spending.

The only thing where our spending may increase in the coming days will be "Traveling"
We are planning for a trek here in the coming Sept.

 

[DesiGirl]

Ahhh I'm starting to see a little better where you are coming from.

Trust me we have quite similar values its just that scale is slightly different. We are big time train people but it has to be 3rd AC at least preferably 2nd. I barely visit Beauty Parlor (may be twice an year ). I cook and use public transport which is extremely rare to see in our community or social circle. One of the reasons I can see is we are 10 years ahead of you guys so things are slightly different. My kids get 2-3 birthday invitations a month easy so gifts add up. We end up spending 3-5K on birthday celebrations even when I cook at home. Marriages , Functions, Movies+ eat-outs with Parents & siblings and some gifts for them ( Apart from the monthly & medical support we provide for them) .... it all costs money.

You have a great wife who cleans & does the dishes herself (very rare to find even with lot less income level then yours ) but who takes care of the kid when she goes off to work.

You say you are an equity guy but you have 38K locked in FDs @9.5% ( I assume) compared to 6K in equities ;-) .

You have some ground to cover and in a way its good that you guys are socking away a lot while the expenses are under control b'caz they are invariably gonna go up as kid grows up and social scenario changes.

Thanks for the Indiahikes link, my stamina level is nowhere in the vicinity of doing Lupin Pass but nature makes me extremely happy so I'll find some easy ones.

Keep chugging we'll all make it sooner or later but don't forget to enjoy the journey.

-DesiGirl

 

[cyborg]

yes, the 10 years lag is why the large differences between your exp and mine. You are right and I need to take account of the increased exp which will come up in future. Thanks for that.
More or less, I see you too don't spend too much but still your expense adds up which is significantly more than that of me. This is what a concern for me going forward. Hopefully, income will rise at a greater speed too.

Regarding Investment: No I don't have any FDs. All 38k right now lying in short term debt fund. So it is almost fully liquid but still giving me 8-10% return (may not perform YoY basis, but last 6 months were fun )

So, yes I am not a passive equity investor you can say.

Other points regarding household chores: Surely DW takes care of many things but I too give her a helping hand wherever requires (Cooking or doing dishes ; I enjoy cooking by the way ). Hence it doesn't make so hard on us. We pack our lunchbox to office almost daily.

Daycare provided by MegaCorp takes care of the kid.

 

[JoeWras]

Keep chugging we'll all make it sooner or later but don't forget to enjoy the journey.

-DesiGirl

I think cyborg is doing good to enjoy now. That trek cyborg referenced looks AWESOME. For me, that alone would cost me $5k USD, that's cyborg's whole year budget.

We're going to the US Rockies sometime this year. Won't be as dramatic, but still pretty good. Probably blow 1/2 of cyborg's yearly expenses at $2k USD to do that.

 

[cyborg]

Lol ! I should seriously give a thought of moving to states to earn in $$. With the exchange rate touching 60 INR, I will reduce my years to be FIREed by atleast 10?

 

[Meadbh]

I think cyborg is doing good to enjoy now. That trek cyborg referenced looks AWESOME. For me, that alone would cost me $5k USD, that's cyborg's whole year budget.

+1. Amazing scenery. Safe trekking cyborg!