Real-Estate followup: Was buying a house right decision?

Real Estate
Was buying a house right decision?

Last month I did a post about buying a house and in the comments we discussed whether we were crying over nothing. We also started looking into real-estate as a potential income source. So we decided to do a bit of follow up on that.

The background

When we bought our property in 2013 we took out a 10 year loan which we equated in April last year. Since then we have run the numbers and invested a part of the money we were parking in max gain. This has allowed us to achieve a balance between higher returns and interest paid.

We are currently finishing 4 years of paying the loan and our remaining loan if we take our all the remaining amount right away or at the end of the year. Should we wait another 18 months the time frame will be reduced by another 3 months. We therefore stand to finish off our only debt by the end of 2020 before either one of us is 35. That is definitely a nice thought and we do have some money we can throw at the loan, over and above our current investments and EMI after the yearly raise we just received.

Our calculation of current return vs investment old us that we would have fared better had we invested the money in 2013 instead of buying a house. Let us take this a few steps further to see how owning this piece of real-estate will fare for us:

2026

In the last post we calculated that

Rent earned from property (80% occupancy, 10% hike, tax at 20%): 13,00,000*

Expected Property value: 58,00,000

Money paid (Loan EMI+ Out of pocket): 31,00,000

Total addition to net-worth: 71,00,000

Net gain from property if it sells for peak price at the time: 40,00,000

Increase in net-worth in case the money was invested: 67,04,570

This means we will end up ahead in 9 years with the property (rental coming in) than we would have by simply investing it. This rosy scenario depends on multiple things.

  1. We are able to sell the house when we want to and are able to get a fair value for it. The value above is dependent on an average of the appreciation in last 4 years.
  2. We actually earn the rent we believe we will. 80% occupancy and tax on rental income brings this into quite realistic rental gain.

Once we retire we would probably be living in the flat ourselves unless we end up buying another property. If we do buy another property then one of them will be a rental which will provide us with recurring income.

To add or not

Most people include real-estate equity in their net worth. In our current calculations we consider rent as an income but we don’t include the home equity in our net worth. The reasons for those are multiple and not being able to sell the house as quickly as we want is definitely one of them. Other reasons are the unpredictability of housing market and various reasons the price of the house depends on. We might be a great landlord but if the resident associations is a PIA or suck at maintenance our house might lose value.

We are doing and redoing multiple calculations for scenarios where we do invest further in real estate and in ones where we don’t. Real estate has a huge potential of recurring investment post retirement and an increased income during our net-worth creation phase. If we do add the value of our real estate holdings in our net worth as well then the figures start looking great. I would rather err on the side of caution and not include it.

Do you include your real estate equity in your net worth?


We will keep you updated as we go along and improve our finances and take measures to build a nest egg which can take care of us for a considerable amount of time. In past few months we have done many changes to how we invest along with a few experiments to gauge how we can benefit from various investment strategies like dividend investing and others. We really appreciate the feedback we get from our readers which is the major reason for us starting the blog.

Was buying a house right decision?

It is common knowledge that we own a flat back in our old city and we have made considerable progress in paying off the mortgage. However every now and then I am forced to rethink if we made the right choice. There are a lot of things we did right (and wrong) but was that the best thing we could have done with our money. Was Buying a house worth our hard earned money? This is the question we want to talk about today.

This post contains a lot of numbers and follows my twisted mathematical pattern. If you are averse to so many numbers you might want to jump to the end.

Without factoring in the ongoing interest, it cost us 25,34,641 for a two bedroom flat in a new township with a resident’s association. This also includes 1 year of maintenance paid upfront to the builder.

This was at a time when most of the people around us were investing money into houses which started at twice the price. When we were deciding if a two bedroom house is a good deal for us we were driven by what we can afford today instead of what we will need down the line. Some might call us really short-sighted and maybe we were but with a job which moves us every few years it just made sense to us.

Buying a house: What IF??

We know if we go back to living in the city as a joint family we will need to either rent a bigger apartment or another apartment next to ours. That time is clearly not coming in next 5-6 years and none of us know what we will want at that time. Had we chosen to go for a bigger house almost 4 years ago when we booked the flat we would have put money in something which we would not need for another 10 years. It would have resulted in more loan which means more interest, longer loan term and reduced liquidity.

When we booked the flat the income(gross) to price ratio was a comfortable 1:2. Though we were driven by our desire to spend less then, this ratio in hindsight is something we are quite proud of.By the time construction was complete and we got the keys the ratio had gone down to 1:1.5.

Buying a House: The Math of it all

If we were to sell the house today the average market price would yield us 29,60,000; an approximate 16% gain total in over 4 years since we first put a dime in. for the sake of simplicity let’s calculate how things stand today.

Home ownership cost= direct costs till date- tax rebates

Direct costs till date= Amount paid by us+ Loan EMI

Direct cost= 6,67,688 + 11,43,678 = 18,11,366

Tax rebates(assuming 20% tax bracket)= 70,411 + 20600= 90,411

Home ownership cost= 18,11,366 – 90,411 = 17,20,955

Loan remaining= 10,65,000

If we were to sell today our loan would be taken over by the buyer, therefore the amount we will be entitled to on selling is.

Amount earned= 29,60,000-10,65,000=18,95,000

Profit= 18,95,000-17,20,955= 1,74,045

% return= 10.1%

We currently rent out our flat and that has therefore resulted in both costs as well as returns. Let’s take a look at that.

Land lording costs include furniture and fittings for the flat along with rent agreement costs and other fee. For us this came out to be – 35,315.

Rent earned till date:52,500

Net return= 17,185

Tax on profit from property= 3540.11

Actual profit= 13,644.89

Total profit including rent= 1,87,612

% return= 10.9%


Buying a house: Flip side of the money

When we started in 2013 nifty was at 6,000* and today it stands at 8,400. For the sake of easy calculations I have taken 1st April as the bench mark for every year. Currently we maximize our PPF account but that has sadly not been the case for any FY before this one.

Assuming the same distribution of money i.e. maxing our PPF and investing rest into NIFTY index funds would bring us to 23,45,267

If we were to invest everything into nifty index funds we would stand at 21,79,484.

We are not considering FD route because that is something we have never believed in.

Extra tax we would have paid: 70,411

Final standing

Scenario1: 23,45,267- 70,411= 22,74,856

Scenario2: 21,79,484 – 70,411=21,09,073

Gains

Scenario1: 22,54,856-17,20,955 = 5,33,901= 31%

Scenario2: 20,89,073-17,20,955 = 3,68,118= 21.4%

These numbers are quite sobering and definitely make us want to kick ourselves. It would not be wrong to say we lost a lot of money and tied ourselves to the bank for quite some time. In this calculation I have not included the money we put in the OD account to equate our loan. This money earns us no interest but we don’t pay interest on principle amount equal to the money we put in the OD.

We have always lived on rent because we are posted in a different city than the city we own the flat in.


buying a house
Under construction

Talking rationally buying a house was not a good monetary decision and would have put us far ahead in our FI calculations. If we assume that we would have earned an average return of 7% and all the money we have either put in OD and house as well as what we will put in next few years would have resulted in 67,04,570 in 2026. That is over 20% of our FI amount.

We have in last few months discussed investing in real estate but the numbers as we stand today don’t really look good. Not just that the prices have definitely climbed quite up since we last put money in the market. However we do believe that the equation will look quite different in a few years’ time when we are done with the loan. In case we still have a tenant and the housing market continues to go up we can expect the house to maybe close the gap with the invested money.

There is however a fact which we cannot overlook which is how difficult it is to get the money out from this investment. We fully expect to not be able to sell the house at a fair price should we need to in an emergency. This is one of the major factors why I am skeptical if we will ever buy another property. That being said we can definitely not afford to buy a house right now.


I know of a few financial bloggers who have made their riches in the real estate world. Unfortunately I have not been able to find someone like Financial Samurai in the same market as us. We however need to understand the sector and actual return from it before we can think of putting our hard earned money into it.

  • For those wondering if the figures above are actual, well they are pretty close if not accurate. However it doesn’t matter much since the rate of return remains the same no matter how much we put in.
  • If you know of any bloggers in India who have been writing about real estate strategies we would love to know of them.

How has buying a house been for you? Do you believe that it was a great decision?

Update 2016: How did Royally Frugal household do?

Why are Updates necessary? You ask. When we work towards a long term goal it can be very easy to get distracted. Are you looking at retiring in 10 years by saving aggressively? You are lucky if you can retain the gusto every month and every day. This is what makes it important to set smaller goals and keep reminding ourselves that there are smaller and seemingly needless decisions which will make that goal possible.
In our line of work it is very important that a concept be agreed upon and a vision for the finished product be clearly understood. However the stages of development are equally as important. Every small decision made and detail worked out will result in the final reality you want.
As this year closes we have seen a huge change in how we operate both as a family and as individuals. Our understanding of what our future could look like has improved while our capacity to take a messy house has reduced. When we started on the financial independence ‘journey’ early this year, it was to serve a completely different purpose. Also we were making some 50% less than what we make today. A year before that we were spending 50% more every month on our daily expenses every month.
Let’s talk a bit more about what happened in past year 10 months to be exact.

Income

We started 2016 thinking that we were a few bad expenses away from eating into our meager savings. The reason, in February we had to move to a new and very expensive city for our jobs . In this city a tiny flat rents 3X more than what we were dishing out for a two bedroom apartment, back in the old city.
Even if we could swallow a 300% hike in our rent even day to day necessities cost far-far more especially eating out. This meant we had to find a way to increase our income. Our first step was to ask our current company for some more money as relocation compensation. We did get some but that was definitely not enough to save a huge chunk.

Though this cash crunch was the reason we started on our frugal journey we kept on looking for a job and Mr.S found one overseas where he could make the more than what we were making here together. That was the first time we realized how easy putting in the papers can be and how most companies try to retain you.

We ended up staying with quite a considerable bump in the take home monies. December gave us another bump with the regular raise cycle of the organisation. So we can happily report we are earning quite a bit more than we were doing last year same time.

Another income stream opened up for us with rent from our property we have been paying EMIs for last few years. The flat was empty for a year before our agent found a tenant. We put in some of our own money to furnish the flat once we had a tenant and have been using the rent to make up for it till December.
In 2017 that money will go to equate our home loan once again.


Expenses

We started tracking our expenses around March and are finally able to come to an expense trend which spans for a considerable part of the year. Past year had quite a few ups and down and we realized our expense tracking method is probably not the best one.
We managed to reign in our expenses except for last 4 months of the year. Even with these high expenditure months we overall spent far less than what we were doing in the previous city. Below is the total spent under various heads.
Rent: 2,30,000
Household expenses: 2,14,969
Parental Support: 2,10,000
EMI paid (includes interest payment): 2,51,000
Gifts and other expenses: 20,000 (we did not track this but I am assuming a high sum)
Total Expenses tracked: 9,05,969
Total expenses: 9,25,969

This is an average expense of around 90K every month which is a huge sum for sure and it hasn’t been long since we started seeing this amount in our accounts. Every time I see how much we are spending I am shocked. However once I look into the various heads it starts making better sense.
Rent: Our rent is a lot and it has gone higher as the lease period ended. We did consider shifting but this high rent is still the lowest in the area we live unless we shift over 30-40Km from office and resign ourselves to 4 hours of daily commute. The only solace I have is that this is still less than the other houses we saw a year ago, new construction and ample space for the two of us.
Household expenses: We are trying to get our expenses down to 10K a month and Frugalwoods’s UFM challenge has been a good starting point for us. The expenses you see includes our one time setup costs like bed and mattress, a cabinet and a few other knick knacks required to get the kitchen more efficient.
This year we resolved to not buy replacements till we could repair the appliance. We can say for sure that it saved us over 5K in food processor after we got the jars repaired instead of creating more trash. (How do people in India trash their appliances? I have not had to do it even once; do you sell it off to the kabadi waala or repair shops?)
EMI: we have talked about our home loan earlier and how we decided to use part of the equated money to put into our investments. Around 80% of our EMI went into principle and with the rent now coming in from the property we plan on equating the balance again by the end of the year. This equated amount is the emergency fund we have for anything form a sudden medical emergency or a great opportunity.
This March will complete four years of our loan term and we are happy to report that we should finish our loan way before the full 10 year tenure and should not be paying any interest as we start equating the loan principle with the rent.
Gifts and other expenses:
This is something none of us are happy about not because we spent it, because we did not track it. We are sure what I have assumed here is too much but there is no way to confirm how much we actually spent. This category includes gifts we bought for our family, clothes shoes and other personal items. This year onward we will keep a better track of it all and hopefully this year we will have a single head with every expenditure tracked.


As I said in the start it is easy to lose sight of your goals; we are clearly defining our goals for the coming year which should be coming out sometime soon.
If I had to be true I am a bit disappointed in us. We have not been able to rein in our spending for past 4 months. We definitely have a very real reason for most of the over budget amount but that still means we have not achieved the well-oiled machine we hope to run. This year we are working harder to make more efficient budget a norm for us.
That being said there are still times when we look at our spending habits and are surprised at how far we have managed to come within a year.
Did you manage to save and invest better past year?

The Way November Went

November was almost near October in terms of spending but a lot better in terms of comfort. The memory foam mattress we spent on in October is finally rewarding us with great sleep. Overall it was one expensive month, with a lot of changes both in how we look at things and actual changes which will affect our lives in the long term.

We spent around 27000/- this month apart from rent and mortgage. We also managed to put in a decent sum into our investments as we talked about in our previous post. This was probably the first time since we started on this quest that we timed the market.

This month’s high expenditure was in line with visiting family and being a 4 member household for a major part of the month. A lot of taxis were taken, restaurants were visited and gifts were exchanged. However we believe this is something which will happen at least once a year and will allow us to narrow down our actual annual expenses.

We cut on other expenses so that we can spend on things which matter to us like family. But to say that there were no frivolous expenses would be a lie. We could have cut corners or simply bought cheaper stuff. In most cases that would have resulted in a lengthy conversation which neither of us wanted to be a part of. After you are married for over half a decade you realize there are certain things you can simply not get through to your family. Picking your battles is the way to go!

November also marked a milestone for us and we surpassed 5% of the amount we believe we would require to retire. To be clear this is only in our actual investment not including our home equity or gains on our investments. It has been almost 6 months since we started our first investment in June and both of us believe we are on track. However we are looking at reducing our expenses even further. We plan to be a part of the Uber Frugal Month challenge started by Frugalwoods on their site and our aim is to keep out budget under 10K. However anything below our current estimate of 16K is a blessing.


Though we have been able to keep our actual household expenses with in the budget there is a clear upwards trend and in last three months. This has been a result of mandatory spending (passport renewals and health checkups) and increased household size, but we are not completely off the hook.

One of the major expenses which we could simply not justify was a midnight buffet at an inflated cost with a friend. The food was good but none of us walked out satisfied. It contributed to 6% of our monthly expense and was something which we wold want to avoid in future. Our solution is to host a few dinner parties which will cost us far-far less and we won’t have to wait till 12 in the night to get fed.


We have realized that we are spending far too much on food than required. We established this by not buying any vegetables except for coriander (technically it’s an herb) and green onions in last two weeks apart from staple trio. We have not gone hungry either; instead we have been using what we have already bought. For us one batch usually works for 2-3 meals for each one of us.

One of the things which have helped us achieve this is meal planning and prepping over the weekend. Most Indian curries reheat very well. We cook a bigger batch and pack in separate containers so that when we leave for office lunch involves picking up a box. The week we have all the food ready, cuts down our lunch costs by at least 25%. Since we still buy rotis from our lunch lady we still spend that much. Not only the cost since we know what we cook with and how we are in better control of what we eat. If you are looking at packing your own lunch then this is definitely a way to go about it. If you are ok with rice as your starch in lunch then you are in even more luck. Its way too easy to prep rice for the week, just pop it in fridge or freezer and then reheat or thaw using your office microwave.


For December we are looking to rationalize our expenses and become more efficient in our day to day jobs. We are travelling again for a week in December and are planning to throw a house party for our team on New Year ’s Eve. We believe it will be quite cost effective instead of going out as well as allow us to celebrate in safety of our house. More than that, I love cooking and none of us are averse to entertaining. This party will serve as a dry run for a few other dinner parties we would like to host instead of going out to eat ourselves.

No post about this November can ever be complete without a brief on how we coped with demonetisation. We actually fared quite well. We usually transact electronically and our credit card is our trusty companion (paid full every month). We did however stand in queues but were able to withdraw enough to provide cash for family and ourselves. But the biggest surprise was reduced crowds in the malls on weekends. We had in past spent 20 minutes in the checking out queue to get groceries but this time it was a breeze.

Our investments have fluctuated through the month as markets dipped up and down. Right now for us it is a game on waiting and watching as our money works for us. That is definitely the benefit of a long term plan.

How did your investments fare in the uncertain times of these past few weeks

Update-How have we been?

It’s a time for update. Diwali was just a few days ago and the few days of holidays we had have again reinforced our desire to retire and that too as early as we can. October was probably the busiest month in terms on our jobs and we have barely had time to think about anything except meeting the deadline. This has resulted in silence on this blog and a lot of delayed decisions personally. But that was not the only thing that happened this month; we also managed to finally fly off to a week long vacation. How we fund our recurrent trips is something we will discuss in another post, hopefully soon.

September ended on a high note for us as we prepared for our vacation and managed to keep our expenses within reason. None of us forgot about the blog but as life goes we were pulled into some highly demanding (though rewarding) work and deadlines (definitely demanding). In fact I have a lot of updates written and a few posts I need to sit down and work on.

When you are not dependent on your blog for money you can afford to let life run its course. Especially if you have an audience which realizes that people looking for FI are probably not interested in being bound to their blog. Thanks to all of you who believed us lazy souls will be back soon.

As October rolled in we were packing our bags and the excitement was high with this vacation coming at the heels of a lot of change and upheaval in our lives. Before we move to the FI bit let me say- if you have a chance to spend some time in Indonesia take it. It was perhaps one of the most comfortable trips we have taken in last few years.

November is almost halfway across as well and it has been a fun ride though a bit different from our usual months. We have house guests for a better period of the month so the expenditure is proportionate to a 4 people household than just the 2 of us.

Now back to the FI stuff- a lot has changed.

The month that was

October started with a vacation but for most people this is not really a productive month especially in India. The off days started with Dusshera and were sprinkled throughout till Diwali. It definitely did not hurt that most holidays allowed us to think of a long weekend. Usually Diwali is an expensive occasion but being the frugal people we are we rarely spend big bucks on anything. Diwali also comes with a lot of offers and discounts both online and in stores.

This allowed us to buy some essential items for our house like a bed and a good mattress. We had been researching for months and finally decided buying second hand wasn’t going to get us any major profit. Also none of us were comfortable about a second hand mattress because not many people here use mattress protector. And before this one neither did we. We also invested in a book shelf during past few months which is the only storage in our living room. For Diwali we bought following

Pack of 6 scented candles – 299

Pack of small wax diya(lamps)- 69

6 earthen diya(lamps)- 20

Pooja samagri- 100 (this is an approximation)

250 gm laddu- 50

Most of these are quite reusable and we ended up using just one of the scented candles. Still if I include all of this we spent a grand total of 538/- for the festival. It definitely saved us quite a bit more on the bed and mattress only. As people above 30 we believe we have had our share of fireworks and neither one of us was interested in lighting any so we didn’t buy them. What I am not including in this total is the cost of fruits since we buy fruit anyways as against sweets which none of us enjoys much.

Our office gifted us with gift cards and a small pack of sweets which we were more than happy to eat and share. These gift cards will help us buy some things we need.

Why are we buying things?

It might sound a bit weird that the person, who claims that freedom of not buying is awesome, is talking about buying things. Well there are multiple aspects to this.

We have purged probably a quarter of our belongings in terms of clothes, utensils and stuff which we no longer use. This started with family as we gave them and option to pick first then to a few colleagues and finally we handed a big box full of stuff to the staff at our building. They were free to take it for themselves or sell it off. This might seem stupid to some but none of these were things we could have sold ourselves or our friends and family were interested in. This made sure that we essentially emptied out one of the corners of our living room.

We never really bought stuff except for essentials like a bed and mattress (we sold our old bed when we had to move a few years back- earned money and saved transportation costs.) and a working kitchen. We were gifted the said bed by my family as a wedding gift and the lone couch we own was a gift from a friend. We did spend on buying a new to us four seater dining table and two recliners which everyone loves. We are looking to sell the couch to free up more space and also to reduce the stuff we own.

You’d remember our drive to eat better which we started a few months back. A major part of the drive is slowly phasing out our utensils both cooking and eating to healthier options. Non sticks and aluminium are moving out and being replaced by steel and cast iron. Both the replacements are quite expensive so we are using up any free money we have spare to get us some better stuff.

All of that being said we are quite conscious of the small apartment we call home as well as our preference for relatively empty and open spaces instead of those filled with things.

Big changes same investment

Apart from the changes that we are making or striving for there were two major changes which affected our investments one was the US election and the other was discontinuation of currency. Both these allowed us to buy on quite cheap prices on 9th November. Though the markets have recovered since then we are happy we bought in to the volatility.

Some would call it timing the market, well you would be correct but does it make sense to not buy at really low prices simply to be able to say I have never timed the market? Of course it doesn’t.

We also forayed into dividend stocks this quarter and we are slowly building our stock while investing in index funds alongside. In a market like India where volatility is quite high we concluded it was a good move to try alternates and create a kitty which we can leverage as required once we retire.

Our current portfolio follows the principles laid out here and we believe we will be able to tell you how this decision fared out by next financial year.

Apart from introducing dividend stocks we are continuing with our previous philosophy of investing every single penny we can since we do not need to have additional emergency fund. We are working hard to maximize our PPF accounts and anything over and above that goes into our index funds and dividend stocks.

If you are wondering why we are so intent on PPF that is because a guaranteed rate of 8% return compounded annually is way better than what the best of us can claim consistently from the market. Apart from that any returns are tax free which makes it a great instrument for fixed income.

As an experiment I have stopped tracking detailed expenses every day. We are still keeping tabs on how much we spend every day. It has been going on pretty fine and we have not spent a whole ton on things we don’t need but I miss being able to exactly tell how much we spent on groceries and how much on eating out.

Looking at things differently

As you might have realized we have made a lot of changes around here and a few big ones came from outside our circle of control. We have been looking at a lot of aspects of our lives differently and a big part of that is to make us more efficient. These changes are in various stages and we have been waiting for these results to show up consistently before we share them with you.

This blog is our way of sharing our frugal investment and retirement journey with you. We would love to hear if there is anything in particular that you would like to read about.

Royally Frugal Life: What it means for us?

What exactly is a royally frugal life? If you have ever had this question, prepare to be answered today.

When we were wondering what to call the blog this name stood out and called to us because it is exactly the kind of life we have and want. We are not Royals. Yes a lot of people in our country can actually boast of royal blood we are not one of them. We are not rich either, when both of us started working we were provided with one month’s of assistance from our parents and then were supposed to feed ourselves.

I have talked extensively about how we started off and how our spending mentality gave way to saving mentality. Not only was this a big change in how we view money but also our life.

Royally Frugal Life: What we want and love

We love food and our travels around have made us not only aware of various cuisines but have also led us to crave them. A big part of our spending was devoted to eating out. This definitely did not result in empty pantry at home. No sir, we were still buying ingredients and also cooking though far less than we should have. All we have to show for these food indulgences is bigger waistline (for me at least) and a smaller bank balance. Before we moved to the expensive city our food indulgences were both satisfying as well as not as heavy on the pocket. With expensive city the taste has gone down while price tag has gone up. Thankfully we learned how to eat organic food at a much smaller cost to our pockets.

Another one of our major expense is travel and it would not be wrong to say we are addicted to it. A long spell without travel (visiting family doesn’t count) leaves us suffering from various withdrawal symptoms like yearning, lack of focus and hating our job and finances. Thankfully very early in our travel escapades we discovered that luxury travel is simply not for us, our pocket or our taste buds. Don’t get me wrong we love a five star stay any day of the year but there is definitely something to be said about roaming the streets, eating street food and socializing in a nice hostel.

Like majority of people we love to live in a clean, dry and nice house with enough space for us to walk around without bumping into things and small enough to clean by ourselves. Being comfortable with a comfy couch and a good mattress with little maintenance is far more important than the latest style of furniture. We love to live with our things for as long as possible, changing furnishings every three years is definitely not for us. That being said we love new things as much as any other thing, the element of surprise and a new feel is awesome. But I also love owning and using dependable things or repairing my appliances so that they last me a long time.

That is it for us as long as we have a nice clean place to live in eat the kind of food that we like and get to travel the world we would be happy.

Royally Frugal Life: What we don’t care about

We do not dream of owning an expensive car and burn fuel as we speed along on the highway.  No good sir, we are far happier being the lazy people we are and let someone drive us to the destination in public transport. We save fuel, environment and our energy required for driving and navigating. Does that mean road trips are not our style? Nope. We love them but we equally love sleeping the night away in one of the sleeper trains of India as they take us hundreds of miles away. Maybe when we have the luxury of time to slowly travel we would love to ride or drive our way around the vast expanse of our beautiful country. Guess what we need for that to be a reality- yup, financial independence and retirement so that we have time we need to bring our dreams to fruition.

A lot of people would see us with relatively sparse household (I am trying to get rid of few more things) riding around on a 5 year old motorbike and taking non ac sleeper trains around and assume we don’t know how to live our life. Then these people would wonder how we take so many trips and if we earn that much where is our big car. Sometimes the lack of correlation is simply mind boggling.

This is what our royally frugal rich life looks like to us- simple yet fulfilling and with less things in our life to worry about.

I have written extensively about how not owning a lot has helped us claim back both space as well as peace of mind. Remember stuff is not always physical a lot of us carry around excessive mental baggage as well. Maybe unloading the overload will help us all.

In past three months that we have outlined what we want to achieve as well as what our future goals are we have started working our way to living our version of a royally frugal lifestyle. It may not be a cheap thing to start with especially if like us you believe in bulk buying or if your appliances decide to give up on you together.

What I can say with experience is it will get better. Once you get the hang of cooking for yourself instead of spending money eating out you will actually grow to love the taste of your food better. Once you get the knack of finding deals and looking for the cheapest and effective way to meet your requirements you will never want to spend unnecessary money.

We value efficiency and not owning a lot of things as well as devising our own procedures for tasks have helped us achieve a better work life balance not just with our jobs but also with our chores. I hope to have the same lifestyle we have now with limited work and all the time in the world to travel and pursue all of our other desires and hobbies.

Royally Frugal Life: What kind of future we want?

Does our future royally frugal life include full time travel? Maybe. But there is an equally big chance that we do nothing else except sit on our ass and go through life in peace.  For us the freedom to choose what we want to do every day is what a life like royalty means. We have the additional benefit of not having to keep up any appearances which most royalties suffer from. We have thought about this in detail and have not been able to find a way to achieve the luxury of time apart from following frugal ways.

What is your definition of Rich life? Does it include expensive cars or the freedom of travelling the world or maybe the freedom of seeing your child grow up? There is no right answer and we would love to hear from you.

Becoming a Landlord- Lesson Learnt

August for all means and purposes was a good month and if September could take a cue from that it would be nice. You can read our monthly update here. In August we found a tenant and became landlords ourselves.

Renting without an agent

We are the kind of people who forgo services of agents and other service providers for renting. We do this for two reasons. Firstly, it saves us some money (quite considerable in some cases) and secondly it is easier for us to do it ourselves than coordinate with others.

When we had to look for an apartment after our move to the expensive city we took it upon ourselves. We were told by many including both the renters and landlords that hiring an agent was required. We persevered and landed an apartment which costs us at least 10% less than what we had been told apartment like ours run for. Add to that paying the broker additional 1 month rent and we did land a sweet-sweet deal. The difference is enough to make up for another year’s rent hike which if not negotiated would be around 10%.

Most of the landlords who are looking for self-servicing and industrious tenants also avoid agents. This was the same case last year when we had to shift bases in the old city to be closer to office and reduce our rent. We found a cozy two bedroom place which was 10 minutes from office parking and never had any issues. We are also the kind of tenants who believe in being fair to our landlords. If it is a small repair like replacing a tap, we’ll do it ourselves. However if it is a permanent fixing which we will not be able to take away with us- the landlord pays.

Why we used an agent this time

Even after knowing and first hand experiencing the benefits of not using an agent we had to use one to find a tenant ourselves. We have a few reasons behind the decision:

  1. Our property is in another state so travelling there to vet the tenant, draw rent agreement etc. are not just bothersome and inconvenient they also cost a decent sum.
  2. The agent we found charges quite reasonable rates which are far less than what we would have spent on a trip. These charges cover for leg work of showing the house to multiple tenants, tenant background check and drawing up rent agreement to name a few.
  3. Most important reason was that the house had been empty for almost one year. Once we concluded we would not be able to find a tenant ourselves we resorted to looking for an agent/property manager to help us out.

How it went

Months after contacting the agent we were told that they finally have a tenant who is pretty interested but believes the rent is too high. We did come to a mutual agreement on a certain price and let it out. The reason we came down on our previously decided rate were two

  1. Empty property was simply eating up maintenance costs which the tenant will take off from our hands and is over and above the rent. Even though we do have a good home loan it still means some interest which will be completely taken off our hands.
  2. We would finally start an additional income stream which would help us add more to our savings.

From what our agent and tenant tells us the going rent for a furnished flat with decked out kitchen, wardrobes and other woodwork is a bit lower than what we are currently charging. After we got the possession we had thought in depth about the way we can furnish the said flat. The cheapest option came out to be buying furniture online and avoiding the hassle of a carpenter. The itch to deck the flat was real and we had to hold ourselves back from spending more money on the flat.

Our reasoning was simple; once we have a tenant lined up we can buy the furniture and get it delivered which is what we did. The couple we are renting to were in a hurry to take up the house which meant they were there when a lot of fittings were done. The furniture required will be delivered to them so our need to have a property manager went away

We have been tenants almost all our working lives and the one time we could have avoided that we moved for our job. Mr. S has rented most of his life and I have seen my family managing tenants. This means we know what real pain points are for a tenants and how much they would be ready to wait for; or so we thought.

We were not ready for the continuous communication which will be required with a 32 year old man who is unable to find a handyman we were paying for. More than that inability to coordinate with them once we find a person from 600Km baffled us. This was very different from our approach of talking to the landlord, getting stuff done and then adjusting in the rent.

Lessons learnt:

The entire year from getting the keys to our flat to finding a tenant has taught us quite a few things.

  1. It is difficult to manage a property from distance esp. another city. We believe if we had been in the same city we would have been either living in the flat or at least been able to spread the word around better and would probably not have had to pay for the agency. More than that, getting fittings done and making the flat tenant ready would have been an easy task being in the same city.
  2. It is OK to get help and pay for it. When we finally realized we would need an agency to take over the renting process it was a bit late. We would probably have had a tenant earlier if we had understood the enormity of the task sooner.
  3. Not everyone is like us. We almost always assume that every tenant thinks like us and so do all landlords. Turns out we were wrong. People have different priorities just like we want our privacy and sleep more than not having to clean ourselves.
  4. Getting another income stream started is more important than worrying about 500/- every month. This was something which was pretty difficult for me to do- reduce rent. We finally reconciled that not accepting the tenant would result in a far bigger loss especially if you add the society maintenance and electricity we had been paying.

It is definitely a happy ending with some rental income coming in and unloading of the expenses we were incurring simply by owing a flat. Not just that with a new income stream we have the capability of saving more than what we have been doing. It will take us a few months before we recover the expenses made on the flat. Post that it is pure returns on a property.

Real Estate as an Investment?

Real estate is a great option but unfortunately the returns are still not enough to tide two of us over every month. I am not including rent here, just food and other expenses. Apart from this there is the huge cost we have already sunk into the house. We have discussed viability of real estate as a retirement plan quite a few times but don’t really see it as a real option for us. Will we fare better with a few cheaper properties in addition to our desired net worth? For sure and we might be able to live with just the rent and never dip into our investments. Will that push our retirement back? Definitely. That being said we are still looking into all options and there is a possibility we might surprise you with a new property in coming years. The chances of that are low for sure.

What part of your portfolio is in real estate and how much of your retirement income do to you expect from rentals? Do you have some tenant stories you would like to share?

August-Monthly Update: the month of better health

August was a month of some big changes and a lot of realizations. I am confident that the changes we made last month will have their ripple effects on coming months for sure.

We also decided in August to stop publishing our monthly expense reports because they don’t give a clear enough picture since most of the expenses are rolling. Instead we would like to talk more about the financial and other changes during the month. Which is why instead of expense reports it will be monthly updates from now on.

It started like any other month some groceries and a few other expenses. We ended our ban on eating out in last few days of July and in August we were free from and restrictions on it. This was also the month when we hosted a few friends at our place. But the biggest change was how we deal with our health.

The Hosting

We had a few friends from work over for an afternoon and another friend the next day. I love entertaining and cooking so it was a fun day with colleagues, but not so much with the friend. We have realized in past few months that most people are not fit to be houseguests. In fact our friend list needs some pruning and boundaries need to be set. These two days ended up pretty expensive and cost us nearly 10% of our monthly expenses.

The food

We are slowly turning to organic food and we bought a huge haul of organic staples which will last us far longer than the month itself. This ended up being the biggest amount we have spent on food in a long time. In fact it was almost 3 times of what we spent in July.

We started packing our breakfast for office since June-July. This month we started to slowly wean off our paid lunch in office and started carrying part of our lunch. This will help us to keep the cost down as well as eat food we like and be able to control what actually goes into our food.

Fresh vegetables and milk featured largely in our food list this month which not just makes me happy but also healthy. We were never buying too much sugary drinks but this month we simply got rid of them.

The Health

We got our blood tests done in July and the results were not quite good. Both of us were facing vitamin deficiency. We started vitamin regimen in July and in August we reaped the benefits. Biggest one of these benefits was not feeling tired anymore and suddenly we had so much more time in the evening. All of those few precious hours after office were now usable because we were not burnt out anymore. I am sure our body internally liked the vitamins even more but this was the biggest benefit we could have asked for. We were waking up fresher and sleeping better than we had been for past few months.

Mid-august I decided to take up a new challenge and help my body feel even better. I stopped drinking caffeinated drinks, alcohol and anything with added refined sugar. Water became my new staple and office coffee (free!) went out of my daily habits. Dairy and fresh fruit or vegetable juices are allowed as well. This was probably the biggest change I have ever made to my diet in my life. Even though the challenge I started for myself is for 100 day only (23 days over) it has helped me realize how good it can be to kick coffee, tea and sugar from your daily routine.

Does this help us save money? Yes and no. Almost all of my coffee was in and by office and if I don’t consume it any more my employer benefits by a few mugs a day. Apart from that I am no more ordering a glass of some drink (alcoholic of not) when I go out which saves a lot of money. Though we had already reduced our restaurant visits, this will result in saving a few bottles of carbonated drinks we bought in a year.

Apart from this we have been consciously monitoring our food, which means I decide what we eat and he eats it. Supplements and cleansing food are high on our lists especially since we do have a few new conditions to worry about.

Neither one of us have started exercising except we are cleaning our place much more, organizing better, cooking more and overall spending much more time being active in our daily life. Has this helped? Yup, we have cleaner house, better food and happier people.

The finances

We were able to contribute around 45% of our take home to our investments this month after buying fittings and furnishings for our house we rented out last month. This was not a good thing since we got increased salary this month and we should have been able to save quite a bit more.

A considerable part of our income also goes towards our home loan EMI and the principle portion of it is a tad bit over 10% of our income. Including this we come to a bit over 55% and that is something I am still not content with. There is however a limit to the amount we can save after putting in rent and other mandatory expenses.Apart from these there is a mandatory contribution to EPF which is combined for both of us is around 6-7 % of our take home pay.

In reality I believe we can achieve a maximum 60% savings rate. These savings though are still a bit away from us since we have to recoup the amount we put into our flat as well as the bulk purchases for some food and supplements which we have recently made.

The biggest addition to our income this month was adding rental income to our portfolio. It covers the interest portion of our EMI and allows us to save a bit more. The landlord experience for us newbies has been bittersweet which you should be reading about in some time.

September has continued in the same vein as August and I hope we continue to improve our health and savings.

How was August for you and what are you expecting in September?

Saving Mentality is More Important Than How Much You Earn

If there is anything I have learnt about saving money then it is one thing- it is more about your brain than your pocket. What I mean is, if you have a saving mentality, chances are you will save more than someone with double the income and lack of saving mentality.

Spendypants Mrs. S

Over past decade we have seen our friends amass a lot of stuff. We have collected an impressive amount of things considering we started with a few bags of clothes when we got married. The only difference is we stopped when we had all that was required for our comfort and daily functioning. We haven’t replaced any appliance or furniture in past 5+ years. As people go out and buy new this and that or exchange a perfectly working fridge for the latest model we prefer saving.

Lest you think we have always been so you would be half right. Mr.S has always been the saver of the family. I on the other hand did not fare as well especially with my attachment to footwear. When I joined my first job over 7 years ago saving was definitely not one of my goals. It was luxurious life, good food, clothes and shoes. Sure it seemed cool to have 1 lac in my bank but that was almost 6 month’s pay and then me, could definitely not save that much on my meager salary. When we got married he had 1 lac saved up and thankfully I had also started saving a small sum each month.

At that time we believed saving 10% of your income is good, after all we don’t really make much right. Wrong. I can now see where we wasted money and how we could have been in much better situation than we were. I have talked about our wasteful habits before and a lot of those were a result of consumer mentality. Fully stocked fridge and pantry was in my mind a given even though we were eating out most of the nights. A lot of food was wasted and 5 years ago we were spending at least 1.5 times of our current expenses every month even though the city we lived in was far cheaper than where we are today.

What we assumed was a result of our low incomes was actually a result of our wasteful consumer mentality. When I look back now I could have easily saved over 10K more every month and even if invested poorly they would have made us far richer than we currently are. We might not have been earning a huge sum (which we aren’t earning today as well) but a few lacs saved over the years would have helped us to reduce the amount of home loan or even to build a corpus which allows us to retire and live the life we want.

Shift to Saving Mentality

When you shift your wealth building focus from earning to saving you get triple bonus. Your expenses come down which means you need less money to survive. This also means your savings will stretch farther. As your income increases over the years the saving mentality will allow you to save even more while you maintain low expenses. If you save 10% it will take you 9 years to be able to take 1 year off; but if you save 30% you get a year off every 2-2.5 years.

When we shifted to the expensive city we were told that it will be next to impossible for us to save any amount. The people who told us this were right and we would have suffered if we had not chosen the right home close to office, monitored and reduced our expenses. We did negotiate a raise in months following the move, but we are currently spending far less than we were barely 1 year ago. Our spending in expensive town is almost half of our previous budget. This is when we pay higher utility charges and almost everything is costs more.

Now we concentrate on maintaining and increasing our savings while living our royally frugal lifestyle. Having a saving mentality does not mean starving or depriving yourself. If that was the case we would not have been switching to organic food as we try to save more. Our lifestyle is very important for us and to be true not much has changed except we go out eating less often. Apart from resulting in a healthy amount of savings it is definitely making us healthy as well.

The Results

Would we have been able to even think about retiring at 40 without previous spend as you go mentality? Nope.

Would we have survived the move to expensive city without dipping into our existing savings? Nope.

We would probably not even have been able to equate our home loan. Even though our calculations taught us that keeping money in our investments was better than locking it to equate the loan we can finish off the debt if we want to. This is a very strong psychological motivator and depending on how you think can result in more spending or more savings.

It would be easy for one of us to say ’let’s not save anything this month and go out and buy this thing or that’. There is nothing really we need to save for anymore if financial independence was not on our radar. There are times when I think back and am thankful that I don’t feel the same way about money. I now see money as a means to my independence rather than a tool to increase dependence on more things.

Want to shift your focus?

If you are in the same boat where we were five years ago I know it feels like nothing is working for you and whatever you earn goes somewhere which is not your bank. I also have a two steps for you to start with.

  1. Take a reality check and Know exactly down to the last digit how much you owe in debt and how much you have in assets. Subtract the debt from assets and that is your real net worth.
  2. Write down your expenses –every single one (including those cigarettes) counts. (Drop the habit it will be life changing!)

These two might not be the last steps in actually increasing your savings but they are for sure the biggest steeps you will take. A lot of us don’t realize how much we spend on frivolous things like TV, expensive clothes and accessories and most importantly eating out. A few thousands every month will make a huge difference in how your net worth sits not just a few months from now but also when you call it quits.

Changing your mentality can take time or in some cases like ours it just becomes a necessity. Once you start looking at the expenses through savings tinted glass you will find a lot of ways to cut your losses.

Organic on a Budget in India- Slash the Grocery Bill

Organic food has started featuring more and more in our staples and other grocery options. Over past three months we have consciously tried to include most if not all organic food options in our dietary chain. There are two main questions which I had before we got on the organic bandwagon.

  1. Can you even taste the difference, is there a difference?
  2. How much will it increase my budget?

The answer to above questions is yes and not much respectively from our last three months of experience.

The truth is most organic produce is expensive, and in many cases twice the price of generic store brand. Another truth is that a lot of that price is because of fancy packaging of the product. When we decided to switch our regular grocery items for organic options we were lucky to find a major promotional sale on a brand. That allowed us to get a few supplies (which we are yet to run out of) for quite cheap. If you go back and look at this expense report you would see our haul and we have been adding to the pantry little by little.

We are yet to go over our budget because we bought a lot of organic food options. This was a major surprise for me because I was really sure we would easily triple our monthly expense. Here I have to admit we are short of organic options for a lot of things we eat especially pasta and noodles which is am sure I can’t make at home. Instead of talking generally let us talk about the specifics.

Buying less = wasting less=spending less

Organic Staples which will last us over 3 months. Total cost- ~1150/-
Organic Staples which will last us over 3 months. Total cost- ~1150/- (and a few regular food)

We like most people out there love shopping, but unlike them we go extra mile to find a few deals. This meant we were buying a lot on cheap prices, but the fact that we were eating out a lot (see our June expense report) meant a very small portion of this was actually getting used. This meant a lot of wastage and a lot of food unwillingly donated to the pests and bugs of the house.

We now buy only enough so that we consume it in next 2-3 months for dry staples and week or so for fresh produce except dairy. Dairy lasts a lot longer if you buy the right kind and store it right. Our grocery bills are right where I would like them and include a lot of ingredients you would probably not find in most Indian kitchens like Asian sauces, balsamic vinegar, olives etc. We also buy pasta, noodles, tortillas and more which add to the grocery bills in big chunks.

No Sugar- not even Organic

We are both savory people and enjoy savory food and beverages more than their sweetened counterparts. Though we enjoy aerated drinks every now and then they are never a part of our monthly grocery haul. Not only does this shave off a bit from our grocery bills it has also reduced a lot of junk from our diet. We also consume less than half a kg of actual sugar between the two of us in a month. For this year the store near us is running a promotion for free sugar every first 1000/- you spend in a month. We send this to the ‘rents and have been transferring the savings to eating real organic food.

No junk food= more money for real food

You will notice very few potato chips will ever have organic written on them and those which do, come at a great price. We have of late reduced our consumption of snacks and any saving gets transferred to eating organic actual food. To be true we still have a long way to go to completely get the junk out of our food but the reductions we have made are clearly evident in our budget and food habits as well. My next goal is to make some snacks ourselves using our organic supply just to know what goes into our bodies.

Research the hell out of everything

Organic food is expensive till you are buying it from anywhere. The only way out of higher prices is to grow/farm it yourself or to research the hell out of the products. Our research and curiosity (as with anything financial) has helped us keep the costs down as well as find organic produce when we thought none existed. Like the organic milk we stumbled upon while browsing the aisles of the supermarket. With the offer on the milk it came out way cheaper than our current non organic UHT milk. Similarly yesterday I discovered that one of the bigger online grocery shops have their own brand of organics which is 10-20% cheaper than the branded ones we bought last few months.

Grow Organic Yourself

Like making our own snacks growing our own food is something which I am currently looking at with great interest. Today’s task is to scout our apartment’s terrace and see if we can put in place a few plants there. My currently rewarding exploits are in organic sprouts. I have been growing them successfully to quite good lengths from organic mung beans I brought. Barely an hour a week allows us to munch on these for snacks or include them in our meals multiple times. To be true you might hear about a boutique sprout shop soon.

All of the above will help you not just eat organics on cheap but they can be implemented to simply reduce the grocery bills whatever the eating habits might be. If you have better solutions for us to help us lower our bills and eat better (especially if I can use it in India) that would be awesome.