There are a few peculiar things I have noted among NRIs. The goals they set, the financial products they buy and the large heart they show are a lot different from those who reside in India. They often fall into 4 pitfalls which make their future miserable.
Many NRIs in Gulf want to return to India as early as possible. Very few would like to work beyond 45 years. They have no idea if they can really comeback early or need to work a few years more. They have no idea what they will be doing once they return as they will still be young and active.
At 45 you might have only started the peak phase of your job in Gulf. Probably you will really create wealth from there onwards only. It is not easy to get a job at 45 or after, in India. Even if you get, most of often it will be a job at a lower level paying low salary. So in most cases returning early could be suicidal.
You should think about early retirement only if you know you will have enough money through live through your retirement and pay for all goals like children’s education and marriage.
Building Costly House
NRIs dream about building a house at their native place which is looking better and costlier than other houses in the locality. They often forget to look their needs. Self Occupied house technically, can be called as an asset but in reality is a cost. It is a dead investment. This is because you will not earn anything from that or you will not be able to use it to fund your goals.
Think, if you were to rent a house, how much you will pay. Do not spend more than 30 times the annual rental on the construction of the house. For example if you are willing to pay a rent upto Rs.10000 per month for a house, then you should limit your cost of construction to Rs.36 lacs. This is a ball park figure arrived at out of my experience.
Vacation Trip to India
We have software professionals working in Bangalore or Hyderabad coming to home in Kerala once in a while. They do not carry a lot of gifts during such trips. But an NRI in gulf having similar salary will carry lot of gifts for relatives and friends in each trip. I have seen people spending about Rs.80 thousand to Rs.1 lac every time they come with their family from Gulf.
Time has changed. There are lot of Keralities who work in other Indian cities and earn as good as NRIs. The glamour of being an NRI lost a lot of sheen because of this. This infact is a boon for NRIs. They should use this to ward off spending on gifts and overall vacation spending. This will help them to save more.
NRIs who are from certain religions are often seen particular about following the religious practice of contributing a portion of the income towards charity. But I have not found it as a specific requirement of people from same religions, residing in Kerala.
Charity is good. But you should ensure that you are self sufficient. You can set aside a fund for charity after you ensure that family’s finances are secured and you are financially free. Till then contribute small amounts as and when you feel, not like setting aside 10% of your monthly salary for charity!
Easily subject to Frauds
NRIs are often the target group for many fraudsters. They capitalize on the insecurity complex and helping mindset of the NRIs. Many times people approach NRIs for borrowing money for surgery or marriage describing a long story about their problems and distress. These may not be genuine cases. The NRI will never get back the money. Once you know that you need to save a particular amount every month to meet your various life goals after meeting your expenses you will find very little left. At that time you will give away money only from the very little left.
An NRI who realizes that he has not saved any money as he has spent everything on house and helping others, will start feeling insecurity. He will be easily lured by get rich quick schemes. For e.g. some real estate broker will sell him a barren hill side by telling that prices will go up ten times because there are chances for a new airport near that place or some SEZ project will come up there. Most often NRI will think that it will serve his retirement need. When he returns he will find that nothing has happened in that area and he will even find it difficult to sell the land a realize his investment amount.
There is no ‘be rich quick’ formula. That is the truth. If you have to create wealth you have to save systematically over a long period. Otherwise only possibility is sheer luck which nobody is sure of.
Most of the issues and pitfalls can be avoided by preparing a financial plan and following it. Financial Panning can help NRIs manage their money, identify their goals and help achieve them. When an NRI makes his plan he will get a bird’s eye view on how his income has to be allocated for various expenses, loan repayments, insurance premium payments and savings towards goals. It will make him think before committing on anything which is outside the plan. The plan will help him ward off the insecurity feeling.