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We came across this Money question in ET Wealth of 2 Dec 2013 and it seemed to a situation in which many young people would find themselves. So we thought of bringing  it up, on this platform and discussing it.

CaseStudy: Single, New in Job and Loans

Anup Bishnoi has been working for the past four months. He lives with his parents and is yet to be married. While he had thought he would save most of his salary, it has not been possible due to the sizeable EMI he is paying for his education and car loan. He is also expected to pay for household expenses. He has been using his credit card, but worries about piling on debt. He is unsure about bringing up the topic with his parents. How should he manage his finances?

Solution on ET Wealth  

Since a sizeable portion of Bishnoi’s salary goes towards servicing his loans, limited cash is available for other expenses. While he may be reluctant to let his parents know what he earns and how he spends it, he should have realistic expectations from his income.

 The critical component here is the loan and any default will impact his credit score. This, in turn, will negatively impact his chances to get a loan in the future, say, for buying a house. The car might have been an impulsive buy, and unless he really needs it, he should consider selling it to repay the loan. During the time that he prepays his education loan with the savings from the car loan, he will have a limited surplus to spend on other things.

 He should be able to tell his parents that his finances will be back on track once the loan is out of the way. He should also fix a tenure for the same while asking his parents to understand his situation. Once he is loan-free, he should contribute a fixed amount every month towards the household expenses. He should ensure that he contributes to the family kitty a good portion of his savings on rent and other expenses that he would have incurred had he not been staying with his parents. If Bishnoi limits his spending and demonstrates with his actions that he does not have too much to spend, he will be able manage his finances better.

Analysing the case

How should have Anup Bishnoi handled his finances? Where did he go wrong? What did he do right?What should he do now and in future?

Spending : Let’s not forget that he is just four months into the job. When one starts earning one feels like a king, earned the right to spend without asking anyone about the money, justifying the purchase. How much should you blow up without thinking or guilt. Early bird catches the worm, starting saving and investing early gives room for one to learn the ropes, make mistakes and learn from it and also lets compounding come into play.

Buying a car so early and that too on a loan when he has education loan does it make sense?  Yes owning a car is a status symbol and one can give many reasons to justify it like  it saves times, ristedaroon and padossyioon mein humari naak oonchi ho jayegi (It will give a good impression on our relatives and neighbours) It’s not just about buying  a CA…RRR but along with it comes the regular expenses of petrol, maintenance, insurance etc. But when should one go for buying a car?  Should one buy car on  a loan or save for a some time and think about the financial and non financial aspect of buying a car(Often we see cars with just one person and wonder why he or she doesn’t car pool or use office transport )  More details at Cost of owning a Car

Credit Card Debt : He also has a credit card and he is piling up debt. Paying a minimum on the credit card bill is a short cut to debt! And it also affects the credit score? Do people know about credit score, care about it till they apply for loan (vehicle or home). More details at Credit Card Debt

Education loan is slowly and steadily making inroads in India. Earlier parents used to responsible for child’s education and higher education. But these days due to rising cost of higher education people are now taking education loans for post graduation. Graduation is still being supported by parents. US is reeling under the pressure of education loans. Does it make sense for people to go for education loan? If yes when does taking education loan justify the education. Should people try to pay off their education loan as soon as possible or not?More details at  Understanding Education Loans

Parents financial expectations from children : Do parents expect their children to contribute to the household expenses once their child starts earning?  Should children when they start earning contribute to household finances? If yes how much, in what way(some give gifts to their family members, some give rent, some fixed amount every month) . Is there a difference in which family treats a working girl and boy? If yes how and is that justifiable? More details at Parents & Us:Changes in the Way We Earn,Spend,Invest

Parents and children financial discussion : Should he discuss his finances with his parents? Why or why not? When he discusses with his parents should he talk about his earnings or loans or investments or his contribution to family.

Marriage : He is not married . How should things like contributions to his family change when he gets married? When should one get married? What are the factors one should take care ex: age, working  or non working wife?Do these factors differ for girl or boy? While reading interview of film stars Shahid Kapoor and Sonakshi Sinha for their film R..RajKumar on Bangalore times last week their view on marriage caught my attention.

Shahid, on the personal front, are you single as reported? Are you open to an arranged marriage? 
Yes, I am reportedly single! Also, every marriage is arranged only. When you fall in love, you have to arrange things before you get married. On a serious note, I don’t think so much about marriage. I have not reached that point where I have fallen in love with somebody and am ready to settle down. Men, unlike women, do not grow up wanting to get married. They think more about how many girlfriends they’ll have, parties they’ll attend… there’s a difference in the psyche. We don’t think about marriage until we reach that point where boss, abhi toh sochna padega hi padega.

Sonakshi, what’s your take on marriage? 
When I was 16, I would say, when I grow up, I want to be married with two children. As I am reaching that stage, I find myself evading it. I am so involved with my work that.. aise kisisey bhi nahi karne wali shaadi, aise haar nahi dalungi.

Monica Halan of Livemint threw some light on finances of single person. Quoting from Livemint’s Single person finances need even more attention

Vivek: How does a single person’s finances vary from that of a married person’s? How do your money needs, or money boxes, change if you are single compared with when you are married?

Monika: Marriage brings about responsibility. When people get married, they suddenly realize how important money is. We get many questions from people who just had a baby or are planning one. A child does make you a little more aware and a little more responsible. There is enough research that comes out of the US, unfortunately we don’t have that research here, which says that married people have significantly higher income levels than single people. Single people will have an income which is about 70% that of a married person. There is something about marriage that gives you responsibility and stability which showcases itself in increased income. So the first part is the potential to earn better. The second part, of course, is that in a twin-income household, there is an economy of scale. Then there are tax benefits. If two people buy a house, they can both avail tax benefits on principal and interest deduction. Now what should the money box look like? You need the threshold of an emergency fund which is about six months of your living costs, you need a robust medical cover and you need a retirement fund, especially if you are single because you are looking after your own future and there is no spouse to fall back on. Single women, either through choice or divorce or widowhood, must remember to save for their retirement too.

We did an interview sometime back with a reader in 20s about his thoughts on money, financial planning,investment,insurance which you read at An Interview: 20s and Money. We also did a presentation about Money Awareness for Beginners which might be helpful.

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What do you think ? How should have Anup Bishnoi handled his finances? Where did he go wrong? What did he do right?What should he do now and in future?What did you do when you started your job? What would you have done differently? Should we take such case studies at bemoneyaware blog?


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