Honey, I Shrunk The Budget!

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There..I just dated myself.  If you remember “Honey, I Shrunk the Kids” movie (1989), then consider yourself also dated!

Regular readers of this website know about our big decision to move to India.  I’ve also shared in an update that our move and settling in went easier than I expected.  If you are new to India, you may want to read that first to get an overall economic perspective.

No, I still can’t levitate.

With nearly two months under our belt, I made an attempt at budgeting our expenses for living in the largest democracy (or demo-crazy as some rich Indians call it) in the world.   Normally, in all my international assignments, I don’t budget anything for first couple of months because you need at least that much time to get the lay of the land, understand what the locals do and get plugged into the right networks to get you set up for a sustainable lifestyle in your chosen location.

Having done that, and having observed the costs for various products and services, I thought I will estimate our expense budget in India in this article.   Keep in mind that this also includes our kid, whose school fees and related activities are also covered.   

Though I’ve not written about our spending budget in the past, we’ve been spending around an average of $6000 a month for living a fairy comfortable life in the U.S.   For India, I was particularly interested to compare what’s feasible here, without having a preset notion of a fixed spending budget.

In other words, we live the lifestyle first and then calculate a budget around it.  I am not recommending this as the right method.  It doesn’t apply probably for 90% of people.  Heck, even the rest 10% may not agree but our case is rare.  Budgeting is valuable (or even sexy) and living within it even more so, but our situation is rather unique that we can afford to diverge here.  We believe in being sensibly frugal but not cheap just for calling ourselves too frugal!

I have always believed in getting the big things (house, car, insurance etc.) right as these expense categories will have the biggest impact on your total spending.  Call me lazy but I like the Pareto rule – focus on the 20% that matter to gain 80% of the benefits!

This is why you will never hear on this site about coupon clipping and other frugal methods to save a nickel here or dime there.  Don’t get me wrong, they also can add up to save living costs but only if you have optimized the big spending areas first.

Importantly, they will never compensate for bad decisions in the big categories that matter.

Imagine a car’s fuel tank – no amount of controlled driving will help save fuel if there is a gaping hole on one side.  You will run out of fuel soon.  You will get frustrated that despite your frugal driving attempts, you did not go the distance.  If you have a fuel-efficient car and the fuel tank is sealed tight, then even too much driving won’t hurt you much.   This may not be the best analogy but you get the idea!

I have also learned early in life to pick my battles and forego the rest.  That’s probably why my marriage has lasted so long!

In that spirit, I put together a budget for our new life in India using items that are representative of our lifestyle, based on what we are spending on food, furniture, eating out, utilities, school fees etc.

Let me start with honey

Yes, a strange item to start with but bear with me.  The TFR household is a significant user of high quality, natural honey.  We use it in breakfast, sometimes with toast or at night with a warm glass of milk and even use it in other dishes.

Honey is a natural product so, quality depends a lot on the source.  We don’t go overboard here with exotic grades but we generally prefer USDA-certified organic honey sourced from a protected, well maintained facility.

So, honey is where I start this budgeting with!  I bought the organic honey below from an Indian retail store, and this is sourced from wild flower farms located in the upper reaches of India’s northern mountainous state Uttarakhand, at the foothills of The Himalayas.  I covered this state a bit in an earlier article about The Ganga.  I paid INR 190 ($3) for a 250 gram or 0.25 kilogram (0.55 lb.) bottle.

The honey was delicious,  and it had a natural after-taste that is characteristic of all organically produced honey harvested from natural beehives.  It also has a low crystallization index, which processed honey doesn’t have (you will see sugary precipitation even at room temperature from refined or sugar-infused honey).

Sidebar 1:  India follows the metric system, so it’s kilograms, liters, and kilometers here instead of pounds, gallons and miles. My son is already working his grey cells at the everyday math problems he is having to solve here on unit conversion!  Dad, I know how many pounds is a 2 kilogram bag of potatoes..do you? Yes kiddo (**dad quietly punches numbers in phone calculator **)

I compared our newfound Indian organic honey with a quality organic honey we used to buy in Texas.  Back in the U.S., it sells at $8.95 for 12 oz. (0.75 lb.) bottle at Amazon, which works to $6.56 for the same 0.55 pound (0.25 kilogram) quantity.  So, on apples to apples honey-to-honey basis, the cost here is less than half (46% to be precise) of U.S.   The organic honey we really liked in the U.S. cost $12 for the same 12 oz. bottle but we rationalized to a lower cost organic honey below due to availability issues with the brand we liked.  So, I used the lower cost product for comparison. 

From honey to Honey…look at all that space!

The rent we pay for our 1900 sqft, 3 bedroom house in an upmarket neighborhood is 35,000 Rupees (INR), which is about $550.   Similar sized property in a decent neighborhood in our Texas suburb would cost us about $1800.   My friends tell me even that is a steal compared to many East or West coast cities where similar space would rent for $3000-4000+!   So, even compared to my modest Texas town, the rent we pay now is about 1/3rd of equivalent U.S. rent.

With honey and rent out of the way, what comes next is transportation.  Yeah, there is a grand order to my expense budget!

Here, I went a completely different route than how I’ve lived in the past.  In my sensibly frugal article, I compared the benefits of a used car purchase versus a daily Latte.  I’ve always bought used cars but out here in India, people I respect warned me it’s a bad idea due to risks of mechanical breakdown and unreliable service quality. 

I was advised to get a new car with high ground clearance due to number of potholes on roads.  After some deliberation and considering our interest to explore the country, we bought a premium model of Toyota Innova at a price of INR 1.8 million (about $23,000), and comes with 3-year full service warranty.  This comfortably seats 7 people with modest baggage (or) say, 4 people with the entire back row available for our excess baggage and camping gear that routinely show us as the Americans that we are!

I am not including the car cost in the budget because it is a one-off item and was covered by my employer as part of my “settling in” expenses.   I could’ve chosen a cheaper car and saved more of my settling in costs but I put our family safety and interests above saving the cost difference with a cheaper or used car.

Sidebar 2:  My son is enrolled in a private school here.  It is good but nothing fancy and it averages to $400 a month in costs.   There is a school bus just like the one in the picture that picks him up right from our front door and drops him back in the afternoon.  We pay separately around $100 a month for this privilege,  as his school’s “transport fee”.  Interestingly, the school bus is painted the same yellow color that we see in U.S.  It also has a small octagonal red STOP sign attached to the driver side window that pops up when the bus driver stops the vehicle and the door opens.

Some things don’t change, I guess.  

But some things do.  Like the right hand drive so the driver is seated on the right side – I embarrassed myself trying to get my son to board the bus on the wrong side the first few times.  In addition to the driver, it has a ‘caretaker’ lady whose job it is to ensure kids board and get off the bus without incident.   The caretaker lady is employed by the school, just like the driver.  My son stands tall for his grade.  So, he doesn’t need any help getting on or off buses.  I guess the caretaker mainly helps the little kids in grades 1-3 get on the bus.

The school bus looks like a mirror image of my son’s Texas school bus, with a tighter seating arrangement and the seats have less cushion (yeah, you must feel the potholes, it builds character is what I told my son who complained the first week, but he stopped after he made new friends on the bus).   While the bus doesn’t scream luxury, I felt it was solidly built and reasonably well-maintained.   The entire bus fleet in my son’s school was manufactured by Tata Motors.  It’s not a brand you may know or even see on any school bus in the American public school systems but it is a reputed automobile company in India.  Americans and Europeans may connect more with Jaguar and Land Rover automobiles, which are owned by Tata Motors.

OK, this went into a longer sidebar than I wanted (I can hear you go TFR, get off your bus fetish!), but the point is we are spending a good amount (by Indian standards) on schooling and transportation.   Our expense budget also considers two ‘coaching’ classes we have enrolled our kid (one on advanced math and another for tennis), and each of them costs under $100 a month for 2-3 classes a week. For just around $10 per hour a class, he could join as many of these classes that he wants!

The total picture

All things included, our realistic expense budget for our lifestyle including rent is working to a total of INR 210,000 (~$3300) per month.   This includes a family health insurance plan of INR 5,000 ($80) that covers us for 90% of all hospitalization expenses.    Out-of-pocket medical (not covered) at $7 per doctor visit is budgeted separately at 2 visits/month and medicines at another $10 per visit.   

Clothes, school and routine periodic expenses (including some recreational travel) are already covered in this total.  This also includes a maid who comes daily (except Sundays) and cleans our dishes, floors, bathrooms and does the laundry.   Also included are the really small ‘convenience’ expenses for dry cleaning and pressing our shirts/pants/skirts.   These types of services are an interesting ‘cottage’ industry in India, and probably worth their own post.   They are everywhere, convenient and provide excellent service.  

Available at $5 where we had this type of smorgasbord vegetarian lunch, served by uniformed wait staff!

Our budget also includes our weekly eating out – vegetarian food is so delicious and cheap here that this luxury alone is worth going out frequently (daily, if you ask my wife). 

In addition, our budget also includes a monthly provision of INR 25,000 ($400) for one-off expenses like appliances, maintenance or some local gifts, and a ‘buffer’ of INR 10,000 ($160) for any incidentals that we don’t care to track accurately.   The $400 provision is included simply to smoothen out any one-off purchases, and so is the $160 buffer.

The grand total of INR 210,000 covers our monthly lifestyle comfortably here.  At current exchange rates, it is worth US$3,315, so the annual expenses for our lifestyle here is projected to be $39,780.  Let’s round that up to $40K.  

Honey, I shrunk the budget!

From $72,000 a year in Texas to $40,000 a year in India, with more lifestyle conveniences than we enjoyed back in the U.S.  Not a bad bargain, so far.

This budget also has several cushions, the biggest of which is the rental expense of INR 35,000, which will disappear when our 3-bedroom condo gets ready by middle of this year that I mentioned in our post about our net worth.  It is expected to yield a rent comparable to our current rent.   This line item alone will save 17% off the expense budget, which will bring our effective spend to under $34,000 a year!

When I see (relatively high) budget numbers like these for us in Asia, I can’t help but wonder how some families of 3 or 4 people claim to live on just $24,000 a year in U.S., even in the so-called cheaper parts of the U.S.?  I can understand some apartments can be rented for $550 per month (the equivalent of our monthly rent) in some low cost neighborhoods in U.S.  What if you own the home?  Well, the property taxes, insurance and maintenance (‘PIM’ costs) will easily cost $550 per month, if not more, in most parts of the U.S..   

One friend, who owns his $350K home outright in a suburb of Houston, spends $1000+ monthly for PIM cost.   Another friend, who owns a comparatively modest home in a far suburb of Cleveland (valued by Zillow at $180,000), still spends about $800 monthly for PIM costs.  These are professionally successful and financially sensible folks, with a significant net worth.   They are shocked to hear how low my rental costs are for a 1900 sq.ft. two-story single family home with a large terrace. 

Sidebar 3:  Speaking of terrace, we have a fairly big one here (~1000 sq. feet).  So, like the majority of Indians, we only chose to buy a washing machine (no dryer).  After the wash, our maid (who works 3 hours daily at our home, except Sunday, who is paid $150 a month) sun-dries the clothes on the terrace.  I love the crispy fresh smell after the clothes are hanged out to dry under the sun.  It takes as little as one hour during Indian summer to as much as 4-5 hours during the winter to completely dry the clothes. 

Aside from energy cost saved, this just feels like the right thing to do to blend in with the local culture. You often see clothes hung outside to dry on the terrace or balcony of most Indian homes.   There is a beautiful tree right outside our home that provides a nice focus to this sunset picture I took from our terrace.

Sitting 10,000 miles away in a country dubbed as one of the low cost locales in the world, I am scratching my head how some FIRE’d families claim to live in U.S. for $24,000 a year?  Granted, we are not living in India as frugally by the definition of ‘recycling dryer sheets’, but we are being relatively frugal in the big things that contribute to majority of living costs. 

Being vegetarians, our food costs are below $300 a month plus we spend another $150 for eating out (despite eating out weekly here).  And we eat very well (you can tell by our choice of honey, right?).  In fact, I should reduce my weight by 8 lbs. to get to my target BMI (more on that later).   

My wife already feels we are frugal enough so I can’t cut any more from our $34K spending estimate (net of rental costs).  It is impossible for us to shave $10,000 from our $34,000 effective spend in India to match the $24K budget of some American FIRE bloggers.  That’s a reduction of 30% out of a budget that has practically zero housing costs (as this $34K figure already considers our house rent is offset by our soon-to-be-ready condo’s estimated rent).   

Early retirement is tempting (but TFR, oh behave!)

A very different retirement math here!

Among several things, what this analysis has done for us is that should we choose to retire here, this puts us in a different level in finances than what U.S. can offer.  If I apply a conservative 3.27% safe withdrawal rate, we would need $1.23 million in invested assets for $40K annual spend, inflation-adjusted forever (within reasonable limits, of course).   We would need just over $1 million in financial assets for the $34,000 spending budget. 

We feel incredibly blessed to be in the position of considering a ‘permanent’ retirement in India even now.   Of course, having covered my relocation cost, my employer will be totally pissed if I told them I am going to retire now, but it’s nice to know that option exists!  I must remind myself to stay disciplined to my $10! goal.

Yes, India can be chaotic and a nightmare to navigate through if you don’t know the landscape. Like I mentioned in my previous post, the Internet continues to be a source of frustration.   However, if you can blend in, you will notice many nice things.  This country is incredibly diverse, rich in culture, offers many affordable daily luxuries and serves delectable cuisine at very low cost (if you can tolerate a bit of spice!).  

An old proverb says ‘variety is the spice of life’.  So if you can handle a little spice and stay flexible, India can make you belong with its amazing variety.  

I know this has been a monstrous post (2800+ words) with 3 sidebars, so if you stayed with it till the end, thank you.  Hope you learned something reading it as I did in writing it.  Share your comments below.  

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23 comments on “Honey, I Shrunk The Budget!”

  1. By Cost Seg

    Budgets are great, but I think that people fail too often to examine their assets and liabilities. The real important part is taking a look at your net worth. This is the real key to financial independence.

  2. By LastManwalking

    You might not like it, but truth is : You are trying to maintain your(or high spender’s) US lifestyle in India. Your monthly budget of INR 210k is higher than the ANNUAL INCOME of about 80% of population(2015-16 data). Let that set in for a minute, I wrote ANNUAL income, that is right. It blows my mind. I hope you are still earning your US salary in India to maintain it.
    So your budget is not modest at all by any standards. It is actually ultra luxurious.
    PS: With the maid doing all labor work in home, forget about losing that 8 lbs, rather try to maintain what you have.
    (SMH by the sheer amount of consumption)

    • By Roman

      LastMan, Thanks for telling me the “truth”. I don’t know whether you live in India but assuming you don’t: India is not one homogeneous country but a massive ecosystem of contrasts. It is easy to be fooled by a dated statistic that you cite.

      If you read my article carefully, I highlight the major income difference between the vast rural India versus top 5 metros where bulk of economic power resides. Let me give you another statistic. There are 10 million people in India with annual income over 2 million INR (~$30kj. They are all concentrated in cities. Let THAT sink in for a minute. Every one of them would have a maid – it’s common in India, and this serves as informal employment sector for many rural transplant Indians. We do plenty of other chores, and only use the maid for some work, so there are many ways for me to burn off my 8 extra lbs, which has come down already by 4 lbs, since my move here – largely due to fresh produce and far less food than Texas-sized portions. I appreciate your concern about my weight loss goal though.

      The concentration of wealth you see in Indian cities makes my monthly budget upper middle class, at best. Far from “ultra luxurious”. Cities are where medical, schooling and infrastructure are at somewhat decent levels, so it’s no wonder all Indian professionals want to live in cities. It is easy to get fooled by an aggregate statistic of average income based on 1.2 billion people (mostly spread in rural areas) but when you live here in an urban setting, you see a different reality.

      • By LastManWalking

        Hi Roman, Thanks for your reply.
        Please ignore the comment about maid/losing weight. It was mean sarcasm(although cheeky, I chuckled while typing) and forgive me if you were hurt, even flinched(You are mature enough unlike me. besides you can take that as challenge and lose more, win win). Possibly, look into strength training to actually have lower fat% vs muscle in body.

        While I agree about the vast difference in incomes across population in India, I still think it is still a high monthly budget. But again, you know the ground reality more than me since you are there on the front and I am just typing sitting in a comfortable chair across the world. Boy, that schooling is expensive even when you considered it not fancy. I am fascinated since it is higher than my monthly expenses in here in US in a medium cost of living area. At least you bought the car(or got it free) considering utility than prestige(although here I disagree again looking at per mile costs and difficulty in driving a big beast like that on Indian traffic conditions in metros).

        I have a question, I know that you are working now and might be thinking about retirement later. Are you going to fund your retirement by passive income from US based investments or local investment returns? Does your withdrawal rate considers local taxes?
        PS: Congrats on losing that 4lbs ;).

        • By Roman

          Thanks LastMan. The public schools in India (called “government schools”) are often in dilapidated condition, so even a modestly earning average Indian will skimp on other essentials for the family and spend a major share of their income to send their kids to private schools in the hope of a better education (which range from about a 1/3rd of what I pay to as much as 3 times what I pay!). This is a common cultural factor that I have seen in many countries in Asia. So, my kid’s schooling cost is probably in the top 1/3rd of private school costs here, so not fancy if you define the top 10% of the cost spectrum as ‘fancy’.

          My car has a surprisingly low turning radius despite being relatively large. I also use a driver occasionally for long-distance drives, so that helps. I don’t wish to disclose my specific retirement plans here, but if you read around the site, I have left enough clues about how we intend to finance a globally itinerant retirement.

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  4. By That Frugal Pharmacist

    Thanks for the rundown! I came across this from a FIRE blog, but I will surely be reading more.

    My work doesn’t provide any easy opportunities to relocate to India, but we have mused that it would be nice to take maybe a year off once we do reach FI and spend some time in India.

    I’ll be digging around a bit more now to figure out more about you. Don’t be surprised if you get quite a few questions from me… maybe my musing could happen someday.

    • By Roman

      Thanks TFP. Glad you like the content. Sure, take your time to read and comment. I will reply whenever I can.

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  6. By Prasanth

    Try Amazon Pantry in India for groceries and bigbasket for fruits/veggies . They deliver all your groceries/fruits/veggies at your doorstep and is way cheaper than many of the grocery stores. I prefer this to taking out my car and driving through the nightmare traffic here and running around for a place to park and all the stress that comes with it.

    • By Roman

      Yup, I use them and also a local grocer who also delivers home for some special items not available in Amazon.

  7. By Gasem

    So is 10! your number? If that’s true that’s enough for 3 Indian retirements. Very smart

    • By Roman

      Yes, $10! is my total net worth target, not the retirement asset base, which is about $750K less. I know doctors target a retirement asset base much larger than mine. Not sure about Indian retirement but glad we are well covered.

    • By TFR

      Yes Troy. Online is big in India as well, and we get great deals. Amazon Prime is just INR 999 [$15.40) for a year, and it offers pretty much same benefits as the Prime membership in US does!

  8. By Mayank Bhatnagar

    Yeah, but you can earn more on your after tax rupees here. Bank savings accounts typically offer around 3% returns. Fixed Deposits (similar to CDs in US) can get you anywhere from 6%-8%, depending on the current rate scenario.
    Investing in equity Mutual Funds should get you around 10%-12% over the long term. If you believe in the India growth story, then you should definitely put in some money into these.

  9. By ZJ Thorne

    Good honey and a lovely terrace. That’s quite tempting.

    I’m glad I’m not the only one who looks at the extreme frugality espoused by some and scratch my head. Taxes and insurance on property are still high. I don’t want to be a miser. I want a joyful abundance.
    ZJ Thorne recently posted…Net Worth Week 101 – Almost Spring EditionMy Profile

  10. By Mrs. Groovy

    You are killing it and having an adventure at the same time. I’m loving it. I just can’t get over your cost to rent. The square footage of your terrace, alone, would go for at least $4,000 a month in some U.S. cities.

    I find the $24K in FIRE puzzling too. If we needed to, we could get our bare bones expenses with no discretionary spending down to that. But I also understand how some people can live on less if they grow and can their own food, sew their clothing, etc. And there’s something to be said for that lifestyle. I think extreme frugality can work if you have a strong reason for it.
    Mrs. Groovy recently posted…Tito, Three Horsemen, and Talking TrashMy Profile

    • By TFR

      Thanks Mrs. G. I try to be realistic (higher than actual in some cases) in my budgetary estimates for spending in all categories with sufficient cushions and deliberate “inefficiencies”. This is the only way I can be sure of shaving at least 10% off the family spending should the times get tough.

  11. By Ty

    How is the education system in India compared to the U.S.? Would you be willing to send your child there from K-8 and then high school/university?

    • By TFR

      The education system in India is basically 10% for “haves” and 90% for “have-nots”, to put it bluntly. If people can afford it, the quality of education here in some schools is world class.

  12. By Travel Travel and Retire

    These posts are super helpful! As someone with a very similar budget and FIRE number in mind that is considering moving abroad to retire and made me realize I could do it much sooner given expenses (which to my estimation would take our family down to about 50k vs 75k) I get really excited reading about your experience!

    Are you keeping most of your money in the USA and take out in India or do you have funds in India for say, the year or more? Or your salary gets deposited locally and you keep it all there? Or how do you work this out in practice?

    Thank you and please keep the posts coming!

    • By TFR

      Thanks TTR. My income gets deposited locally, for which I pay taxes here (higher marginal tax rates than US unfortunately).

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