Expenses / Indian Mindset

Expenses – a drain on our life

The key to achieving financial freedom and early retirement in India is to first decide what you want out of life. When you have decided that you can then look at improving your savings rate and achieving your goals sooner.

Let’s say your monthly salary is 66,000. You work 22 days a month on average and┬áspend about 9 hours a say at work. You also spend 1 hour everyday commuting between home and office, bumping up your daily time spent on earning the 66,000 to 10 hours a day. This pushes your grand total for the month to 220┬áhours and your salary to 300/hour. This means that every time you spend 300 you need to spend an extra hour working before you can live your dream life. Is the expense so important that you are willing to postpone your dream by 1 hour?

1 hour is a very small time frame and unless we are monks we will choose to spend rather than save the 1 hour. But what if we can save 1 hour every week? If we add that up for a 20 year working career it is 1040 hours, which means you need to work an extra 6 months just to spend 300 extra a week.

Taking a look at the highest expense that we incur – buying a home. A home loan for 15 years at 9.5% means the interest ends up at 50% of your loan. The same for 30 years ends up with interest at 85% of your loan. At a loan amount of 20 Lakh, it works out to about 1.5 years of extra work for a 15 year loan and 2.25 years for a 30 year loan. This has to obviously be offset against the rent you will pay when you don’t own the house and that is a separate discussion.

Jacob at Early Retirement Extreme has discussed about changing the way we look at both the stash and the expense amounts here. He talks about how, once we are on the journey towards financial independence, we should not look at expenses in terms of price tags, but how many hours of our dream life get sacrificed every time we spend.

Jim has shared a very different view on how to choose whether to buy or rent a house here, though his is more from a cash flow viewpoint.

Both these views are extremely different to what we are used to. The journey to financial independence is a difficult one, not because we have to push ourselves to improve every time. But because we need to hold strong in the face of skepticism or even ridicule from close family and friends. When the immediate family is on board, we need to hold our chin up in times of adversity and we will pull through.

Hopefully this blog can bring together a like-minded community of people to support and encourage each other on our journey.

What do you think about viewing expenses as number of hours you need to postpone financial freedom by?

Do share your thoughts in the comments below.

*Disclaimer: The numbers and calculations are approximate. There are included only to illustrate the main theme which is change in mindset when we look at expenses.

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