The single most trait of common earning individuals is to spend first and think of saving later because the gratification spending gives is very high compared to saving or investing. Buying a mobile handset, for example, is instant happiness while the return from an invest happens after a few years, ordering for a double scoop ice cream offers instant pleasure while waiting for an investment to offer happiness one has to wait longer.
I realised this human weakness when I was about 37 year old (now I am 53) and decided to follow a different approach towards my spending and saving habits. I also was witness to my colleagues and friends finding it difficult to manage their families with range of loans — home loans to car loans to personal loans and struggling to juggle between earning, spending, saving and clearing piles of loans.
One Sunday I sat and started to jot down my future life events in the sequence that it would unfold and I gave the highest importance to three events - pre-closure of my housing loan, my son’s post-graduation admission fees and my retirement.
At that time my son was 10 year old and I knew that he would get to his post-graduation 11 years later and I would need a good chunk of funds to pay for his fees. I did a mental math and surmised I might need about ₹ 6.00 lakh as fees for his admission. Next priority was my retirement funds. I did some calculations and arrived at ₹ 75 lakhs would be my retirement corpus by the time I reach 55 years (the age that I wanted to retire) and clearing my entire housing loan of in 5 years.
Another important decision I took was to not enter into real estate investments by way of buying vacant plots or apartments because it would drain my earnings and also have an impact on my liquidity of savings. I already had own house and is not fancied by investing in properties by desire.
Thus started my allocation towards savings/investing; I chose a mix of equity mutual funds and debt products with 60% towards equity and 40% towards debt. I set aside ₹ 20000 to invest every month till I turn 55 years, my target age to retire from active earning life.
It was tough to manage family expenses including home loan EMIs and yearly education expenses of my son and also paying of some insurance premiums. But I controlled my urge to spend more than what was essential and continued to invest my target amount of ₹ 20000 month after month with discipline. By the time I was 44 years and peak of my career I took another major decision of my life to quit and be on my own.
In fact, the decision to quit a high paying job happened because I realized I did not need to earn so much of salary because in 7 years of changing my spending and investing habits it was clear to me how much I need to earn to take care of my life events. I took it easy after 23 years of corporate life and became my own boss.
Interestingly, I invested just ₹ 2000 in an equity mutual fund (SIP) for 11 years and I achieved about ₹ 6.20 lakhs by the time my son was ready for his MBA; though the amount needed was slightly higher at ₹ 7.00 lakh, but I was 80% ready compared to what I actually wanted and arranging the rest was quite easy.
I even cleared my housing loan by 2012, it got stretched a couple of years, but it was worth it. Now, I am three years away from my planned retirement year which is 2022 and I am prepared well to achieve my desired target. Also in the last 9 years I have had four foreign vacations and also visited some of the best places in India with my family like Shimla, Puri, Dalhousie and the likes.
I continue to save ₹ 20000 per month even now and spend the rest without guilt and also work only what I want to earn for and spend the rest of the time in doing things what I like to do. I don’t smoke, don’t drink or don’t do parties which is more for reasons that I want to stay healthy.
Well, Mr. Warren Buffet has been right while he said save first and then spend, else there will be nothing left to save. Most of my friends make passing comments that I am a lucky guy and leading a bindaas life, but such life has happened because of discipline and planning. This practice of saving and spending has been one of the best decisions of my life.
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