Many of you who follow the blog will have an idea about my journey in life so far, but let me summarize for new readers. I was born and brought up in Durgapur ( West Bengal ), studied in St Xavier’s school, Jadavpur university and IIM Calcutta, worked till 2014 end in corporate world with 14 years plus at CXO level. Since then I am working in my own Management Consulting practice. I have 2 children who are doing Post graduation ( Rinki is in XLRI and is an Engineer from BITS Hyderabad) and Graduation ( Ronju is doing a dual course in BITS Goa). I have been financially independent since 2014 and thought it would be a good idea to share the stock taking which I did recently.
The interesting fact is that the last four calendar years 2014 through 2017 have been progressively the most expensive years of my life. This flies in the face of conventional wisdom which will tell you to be conservative on spending when you are no longer doing a regular job etc. When I took the plunge in 2014 end, my thinking was as below:-
- My total expenses in 2014 was equivalent to 200 units in some scale.
- If I left out children’s college education, the travel to Australia which we went for in October 2014 and my apartment rent in Hyderabad then the expenses would be equivalent to 100 units.
- Now, my rent was getting covered by the rent of my Chennai apartment, I had a separate fund for my children’s graduation expenses and we would obviously not go for an Australian vacation every year.
- Based on this it seemed reasonable that my expenses annually would be in the range of 100 units.
- As my financial assets would generate more passive income than 100 units, I concluded I had achieved the holy grail of financial independence.
At the end of 2015, I was surprised to see that my overall expenses were in the range of 225 units. A closer examination revealed the following :-
- Education expenses were higher as I had to pay two semester fees for my son instead of the one in 2014.
- Expenses otherwise on my children were high, courtesy their being typical college students now. Also, Rinki took up a course for her MBA entrance preparations.
- However, my other expenses were still below 100 units and this was managed easily through my passive income stream.
- It thus seemed that my assumptions held true for 2015.
2016 was a completely different story though. My overall expenses shot up to 400 units and change. Analysis of this figure showed up the following:-
- Educational expenses were very high in the year as Rinki got into XLRI and, after a long deliberation, I decided to fund her first year expenses. We could have taken a loan for the entire expenses but this seemed a better idea for us.
- Other expenses of children continued to grow. I am fine with their having a good time in college as long as they have the right priorities.
- Our travel increased a lot in the year – we took more vacations and also traveled a fair bit for Rinki’s admission process.
- With the declining interest rates the cash flows of my parents got impacted adversely. I chipped in with a greater amount than normal this year.
- We upgraded our timeshare and there was a one time cost of 1.7 lacs for this.
- Furniture replacement with a new sofa set, Dining table and balcony chairs were an expense this year.
- Purchasing a new Android tv, new internet connection, new phone for my wife and a recording set top box also happened during the year.
- In summary, it was a year with great experiences and they often come at a fairly high cost !!
So what was the conclusion I arrived at from all of this? Well, 2016 was definitely not a typical year and I did not think it will ever repeat in our lives. With Rinki getting the rest of her course done through bank loan, asset purchases not really there except for a Fridge and lesser travel the 2017 expenses will be much lower.
The reality was quite different though. We did not spend 400 units in 2017 but it was still close to 250 units. A closer look revealed the following:-
- As is their practice, BITS again increased the fees by 12 % and my children’s college expenses continued to rise. I have been rather indulgent on this as I believe one should have a fun college life.
- As I was earning a pretty decent Active income, I thought it would be good to part pay the Term 4 fees of Rinki. She chipped in with some of her internship earning and this has resulted in the loan amount being only 6.5 lacs.
- Even though we had not planned for it, Lipi and I went for a vacation to Italy in May for a week. It was a great trip and I was quite happy to pay for it.
- We also upgraded our Timeshare once again to a one bedroom unit and this too was an unplanned expenditure.
- Travel within India too was more than we had anticipated. We went to Kumarokom in February, Vizag and Aruku valley in June, Goa in August, Durgapur in September for Pujas and finally Konkan beaches in November. While all these were expensive they created great memories and was totally worth the effort and money.
- Other than the above, most of our expenses were the regular ones. We did exceed on the Entertainment and dining out part but not alarmingly.
At the same time, the experience of 4 years now set me thinking as to whether I should look at financial independence and retirement cash flows differently. After a lot of reading and deliberation I came up with a better model. You can read about it in this post.
I am also working out my likely cash flows in 2018, based on the above model. Should be writing a post on it this week.