It goes without saying that money is the most crucial element of life apart from health. It is not enough to earn, but also to save and invest your wealth so that it grows.
For an NRI, it is even more important to develop good personal finance habits. The Indian economy is relatively insulated to the global winds of change, as it is not yet an export-dependent nation. However, economies everywhere else are much more vulnerable to fallout.
What are some practices that you should adopt for the best results? Here, we look at it in detail.
Personal Finance Habits NRIs Must Have
- Savings
Indians are big savers. By some estimates, Indians save 30% of their income. In fact, the government has tried for a long time to make us spend a little more to boost the economy.
NRIs, too, have this habit of saving a large part of their income. The financial crisis of 2008, also known as the Great Recession, was not so painful for Indians in the U.S., since they characteristically have low credit-card debt and do not over-leverage themselves to buy assets.
A frugal lifestyle and lifelong white-collar employment have made NRIs one of the wealthiest diaspora among all nationalities. It is only recently that software engineers have made it big. Before that, penniless Indians owned half of all motels in the U.S. through sheer hard work and savings.
- Investing Back Home
NRI remittance to India stands at $70 billion, the largest in the world. It is not only a welcome source of foreign exchange but also a major avenue for foreign, non-institutional investment in India.
During the past three decades, the Indian stock market has soared to stratospheric levels. A hundred Infosys shares bought for ₹10,000 in 1993 are worth more than 2 crores today.
The same is true of several other companies spread across the software, telecommunications, and pharmaceutical industries.
Investment in this dynamic climate is imperative. It is the easiest way to turn a hundred thousand dollars to a million, and then to ten million. The recent pandemic has shown that the market is quite resilient and recovered to near-record levels within a very short time span.
Besides stocks, the property market has consolidated. New rules and regulations have made the developers accountable. Quality real estate can be effortlessly purchased and some of the formalities (such as deposit of municipal tax) done from abroad through websites.
- Pay Yourself First
Savings is not what is left after meeting expenses. Savings is what you pay yourself from your income. This allocation comes first after meeting all non-discretionary expenses such as rent and food.
If you adopt discipline, you can make your corpus grow remarkably fast. No matter how good you are at forecasting stocks and commodities, at the end of the day, it’s what you already have in your pocket that matters.
Not only is it a matter of investing, but paying yourself first allows you to make bigger down payments on purchases like cars and houses, thus saving a lot of interest charges.
- Use SIP for Investing
Hard work has been taken out of stock market investing. Indians have taken to Systematic Investment Plans (SIPs) in a big way.
The upsides are huge. Invest as little as ₹1,000 every month in a mutual fund plan, and keep it up for a decade. It is the same as rupee cost averaging, but it takes the hassle of selecting stocks out of the equation.
A professional management team takes care of your assets, and if you are displeased, you can cash out. If the proceeds are reinvested, there are no capital gains, either. This is a win-win no matter how you look at it.
- Use Debt Pyramid
Pay off the most expensive loans first. Usually, people try to pay off the most significant first, and that is a big mistake. A $10,000 outstanding balance on your credit card could cost you as much as $80,000 owed for a home mortgage.
Paying off the most expensive debt allows you to release financial resources for other purposes.
Once you have paid off your credit card debts, keep it clear and use your card only in an emergency.
That is why cataloging all of your debt and arranging a schedule for its repayment is so important to successful financial planning.
Irregular savings, as well as impulsive spending, are equally bad. Saving should be a matter of habit and spending a matter of priority.
- Set Aside an Emergency Fund
This is one vital part of budgeting that is overlooked by most NRIs. Emergencies, though undesirable, occur all the time. Homes are damaged due to floods, and medical treatment costs hundreds of thousands of dollars.
Dipping into your long-term savings to pay off these bills would wreck your investment plans.
That is why it is vital to have a separate emergency fund that takes care of these calamities.
Even if it is not possible to mitigate the entire expense from such a fund, it at least reduces dipping into your 401(k).
