Pros and Cons of Indian FIRE Aspirants

So I was thinking what should be my first post and then I got the idea to write about how an Indian FIRE is different from Western aspirants. As a first step let me delve into Pros and Cons for an Indian FIRE aspirant in this post.

Pros

Frugality – This is something that comes to Indians naturally as most of the population is middle class or upper middle class and practising frugality since birth. I remember that my mom used to store the milk packet covers to be encased for 10 rupees every quarter. Every penny matters. Since most of us grew up in such households, we naturally inherit this quality except few who gets trapped into show off.

Tech Savvy – Again as most of us are graduates and are Tech savvy, it is easier to learn new tools or services and there by reducing the cost of living. Ola cabs or Uber taxi are adopted faster by young generations. Today, Zerodha is the number one Share Broker in India, won over hearts due to its Technology and Service.

Public Transportation – Bus or Train would be the first choice of transportation for most desis. Most cities or town are already well connected by public transportation and thus Indians can save a lot of money in this area itself. But again few trapped in Peer Pressure and comfortableness spend huge money or get into high cost loans to buy car and only to end up using it sporadically.

Food – unlike western world, we desis bring home cooked food to office and only eat out occasionally. This is huge savings Money wise as well as health wise.

Health Insurance – We have one of the worlds best doctors/hospitals at affordable prices in India. Out patient consultations can be easily managed and Hospitalization costs can be covered by Health Insurances. The premiums for health insurances are also affordable if you are already retired early and don’t have employer sponsored ones. It won’t blow a big hole in your moderate budget like they do in US.

Cons

Peer Pressure – Though most of us are brought up in middle class family, we may tend to deviate from frugality due to peer pressure. Starting from buying latest Mobile phones, Big screen TV, going on expensive Tours on borrowed money, everything is just to show off with family, friends and colleagues. Many even define this materialistic life as their success, which is okay but not as much success without the financial independence.

Low Equity exposure – We have very low exposure to equity due to fear of losing the capital or no awareness. Most of us park the money in Provident Fund or Fixed Deposit as they are low risk retirement savings vehicles . This restricts the growth of the assets and mostly matches or even underperforms the Inflation rate. Due to lack of awareness, many invest their money in chit funds and other Ponzi schemes and lose.

Inflation – In US, they say that 4% is the safe withdrawal rate. But in India we don’t have any such formula because we don’t have enough data, even the ones we have are questionable. On top of that the inflation that we have is huge and unpredictable. Currently Inflation is under control and RBI has set 4% of CPI as the target. It remains to be seen how future governments going to handle this target set by RBI.

Regulator maturity – RBI, SEBI and other regulatory bodies lack the teeth compared to those in the US. Consider the recent ICICI Securities IPO debacle. The whole IPO should have been cancelled. We also have seen that big players like Reliance can walk away with mild penalties for the scams as big as “Insider Trading”. Poor investors like us would end up losing the investment amount and these regulators won’t even blink their eyes.

Savings for Children – We have to save for the children’s education and marriage. We don’t have that many scholarships like western countries have. So in my plan for FIRE, I have included the savings for my children’s education and marriage as one of the goals.

Savings for Parents – Again our parents would have spent most of their income on raising us and educating us up to graduation. Unless if any of the parent was a government employee and getting pension, most would have already spent all their money and now dependent on their sons or daughters. Even if they have other assets like Gold or Land, they never monetize it. Instead, they want those assets to be inherited by the children in exchange for safe retirement life for them.

Housing – This is one area where many Indians mark it not negotiable. Everyone want to have their own roof on top of their head. Some due to peer pressure and some due to the psychological satisfaction, safety it provides. But this means you have to spend almost half of your earnings on paying mortgages which jeopardizes Retire Early plans if any.

Only one Income – Not all Indian families have double income mostly due to the way our family responsibilities work. If you are in US on VISA, again your spouse may not be able to work due to VISA restrictions. This means lose of Income of the spouse despite having skills to work and earn. This would delay Retire early plan and even destroy those plans if any.

I think I have covered enough areas on where Indians(Desis) differ and may have positives or negatives when it comes to their FIRE(Financial Independence and Retire Early) Journey. Please feel free to let me know your thoughts on this and point out if I have missed any.

2 thoughts on “Pros and Cons of Indian FIRE Aspirants

  1. Hello!

    I was surprised (in a happy way) to find a Desi FIRE fellow. I am researching currently on tax implications on retirement savings account (mostly 401K, ROTH IRA ), if I plan to move to India. Everything is on air right now. But it would be good to know what would be efficient paths to withdraw retirement money from here and spend in India (tax wise). For ex: If I have ROTH IRA here and I go to India in 5 Years, my contribution withdrawal would be tax free for US after 5 years, but will I have to pay tax in India? There are so many scenarios here. Would you like to write about that aspects (including exit tax)?

    Thanks,
    Sylph

    • Hi Sylph, thank you for the visit. Hope you enjoyed reading the blog.

      For the specific example given above, when you go back to India, you will be in RNOR (Resident but Not Ordinarily Resident :-)) for 2 or 3 years and you don’t have to pay any tax on the money you bring in from the foreign country during this period.

      I have posted some interesting strategies here for 401K withdrawal. Please take a look. Will revisit the tax strategies again next year for all retirement account types, including exit tax.

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