Life In A Metro: Comfort Can Wait; Are You Saving Enough?

If  you are a family of four and live in a metro city, Rs 20,00,000 per year in hand is what you need to lead a comfortable life. That excludes luxuries you might like to splurge money on. Pritesh Kakani, an alumnus of IIT Kharagpur, has triggered a big debate on the internet by breaking down the basic expenses involved in running a household in a metro and they add up to Rs 20 lakh.

The reaction on social media is divided. Some argue that the lifestyle he is talking about is luxurious, not middle class; some find the amount bare minimum and some dispute certain heads of expenditure. Many of those reacting may not have, as the responses suggest, first hand experience of living in a Tier-1 city and some may have reconciled to compromises on living standards. Not surprising. Matters of life and lifestyle are always relative and subjective, aren’t they?

Pritesh’s estimates provide us with an interesting spinoff on middle class life in a metro. He is not too off the mark regarding the unavoidable expenditure in daily life. Outgo on rent or EMI on a home loan is a fact of life, as are spending on the education and extracurricular activities of children, EMI and other expenditure on car, mobile, computers and data services, family trip inside India or away in a year and groceries etc – he lists 28 heads of expenditure (check table on top). You may disagree on the amount cited against certain categories, but in balance he gets it right. Let’s be clear here, we are talking about a comfortable life not a scrape-through life. And a comfortable life doesn’t mean over-the-top life.

Let’s not be judgmental about it. In a metro, the gap between necessity and luxury blurs quickly. Take for instance, accommodation. The amount you spend on this head (Rs 4.2 lakh a year, according to Pritesh) either as rent or EMI on a housing loan, depends on the location and the quality of the residential society. Rent anywhere at the centre of the city is higher compared to the suburbs. And for the same amount the size of accommodation is likely to be much smaller. If you are in the suburbs, calculate the cost of the commute and provide a money value to the time consumed in reaching your office and getting back. Add to that the physical strain involved in dealing with the crush hour traffic and the negative effect on work-life balance.

For a family with growing children a two BHK home is a necessity, not a luxury. If it’s in a well-managed society life becomes safer and easier. Pritesh mentions Rs 35,000 as expenditure towards rent. For an accommodation in the heart of the city in or a commercial area, where one’s office is likely to be, in Mumbai, Delhi and Bangalore Rs 35,000 is on the lower side. But in the far suburbs it can come down to Rs 20,000-Rs 25,000. It’s a choice you make. The same goes for the expenditure you incur on your children’s education.

Now, the serious questions: Are people earning enough to live a comfortable life in our big cities? Is the shift to a metro for professional growth or whatever other reason worth it?

To earn Rs 20 lakh in hand a year (gross around Rs 25 lakh) in India as a professional one has to be in the middle rung in a well-paying organisation. It usually takes 10 to 15 years or more of experience to reach there. If someone starts a career at 25, he would be between 35 and 40 years at that stage. This is also the time children grow up and one thinks of a home or a car of one’s own, and saving more for the future. Expenditure goes up to match the subtle shifts in lifestyle and needs. Not many make that kind of money at that point of their career, even much later (some sectors such as IT pay much more than others. We are bringing up a generalised picture).

People’s Research on India’s Consumer Economy (PRICE), a not-for-profit think tank, classifies middle class as people with an annual income between Rs 5 lakh and Rs 30 lakh. This is a massive range, and there’s no agreement among economists about it. For convenience, experts categorise the middle class into three: lower middle class, middle middle class and upper middle class. If we equate salary with class, which can be misleading at times, few professionals reach the upper middle class category in terms of income from the job. According to Glassdoor.com, an online digital platform that collects information and reviews from employees and companies, the median income of middle level professionals is just above Rs 13 lakh. Since a small percentage of middle level professionals get promoted to the higher level, the earnings of a majority of them is likely to stay around or below the Rs 20 lakh mark.

What does this tell us? A comfortable middle class life in a metropolitan city is beyond most professionals if they are the single source of income in the family. They need to redefine comfort cutting down expectations or find other sources of income to live it up. Pritesh talks about the cost of maintaining a dog, owning a car and vacation trips. These have to be taken off the wish list. Yes, a working spouse can make life much better. But then it might exert some cost on family life. To stop at one child is an option most couples are opting for. Maybe the second child is a luxury given the constraints in a metro.

To the question whether it’s worth the pain to shift to a metropolitan city, the answer is it’s a matter of personal choice. But at some point professionals should be mindful about saving enough for the family. Pritesh doesn’t mention how much of their earnings people set apart for the future. If one is not saving well, there is little point moving to a metro. If that is difficult in the current job then they should look for options. Lifestyle can wait.

(By arrangement with Perspective Bytes)