POSTED BY March 26, 2012 COMMENTS (170)ON
Who doesn’t want to start some venture of their own? Majority of the people are in jobs and a big number of people do not like what they do. If they had a choice, they would really run away in this very moment. But our responsibilities in life and the situation we create for ourselves makes sure that we are stuck and can not get out of the rat race. We see so many people who want to work in start-ups, many people who really want to do something which they really love and enjoy even if it does not pay a lot but it’s not possible for lot of people to simply quit and start something of their own. Today we are discussing if home loans are a big killer of entrepreneurship which lot of Indian’s have in them?
We all know flipkart.com – One of the co-founder of the company, Binny Bansal made an interesting comment that – Home loan kills entrepreneurship.
India is definitely happening and there are a lot of opportunities in different fields. If you are thinking of starting up, this is the best time. But don’t take a home loan,that actually kills entrepreneurship. You can never get out of it. – Binny Bansal , co-founder flipkart.com (via)
Home loan is a big commitment, especially in a family where there is one earning member. People take jobs, get married, get a home loan, car loan etc, have kids in between and life becomes so “formula driven”. Income has to be earned and expenses have to be taken care. Risk of job loss, income loss due to medical emergencies and similar kind of risks are on the minds of a people who are paying for home loan – and this pressure kills the dreams of doing something of his own and the natural thinking then becomes – “Not an issue – Let me earn for next X years and once I retire, I will live all my dreams”. I am not sure if it really works at the end or not.
Santosh Navlani of moneysights.com confirm’s in one of this comments, that saw same kind of thing while he was hiring people.
I am an entrepreneur & meet many people who at times are potential employees for my start-up venture. Now, most of these house-owners even if they are “excited & thrilled”, don’t join a start-up which would offer them great earning potential in the future because of the uncertainties that a start-up job brings to their income. Simply because they have a huge liability!
If one factors the cost of “forgoing” the pursuit dreams, I guess there can’t be a bigger liability than owning a house on loan. I have seen people getting stuck in wrong jobs where they sacrifice their long-term future by satisfying the urge of saving the rent. And yes, you don’t decide to pursue a dream of start-up or a job-switch by thinking extremely hard on it. It just happens that you are not able to take the job anymore. The last thing one wants then is fear of home-loan coming in way.
So what you do if you are young enough, unmarried and want to taste entrepreneurship? This is the right time to take the plunge and take the risk, so that you have that cushion to come back in the game if you fail. Once you take a home loan and are married, life is full of commitments and you will not be excited enough to start something on your own or join a more fun (low paying – at least in starting years) job. One of the friend who didn’t want to reveal his identity shared with me on facebook.
When I was 25, working as a software engineer at Hexaware Mumbai in 2002, earning Rs. 25,000 per month, I quit my job and went to Goa, following my dream and started a completely new career stream at an income of Rs 4,000 p.m. At that time, I was single, did not have any home loan or other commitments and that certainly helped otherwise I may not have been able to take that jump.
Interestingly, when I met a few ex-colleagues from software industry recently, to my surprise, I figured that not only I earn more or equal to them, but am also much happier because I am enjoying what I’m doing. They confessed to not enjoying their jobs and feel that as software professionals working late nights to meet client calls in US, long daily commute to office etc. they felt as though 10 years of their personal life was “sucked” by their jobs.
There is saying – “If there is a will, there is a way” and a lot of people I talked about on this topic, said that if a person has the guts, vision and passion, he can make it real, even if he has huge debt!. But we are talking about the masses here (majority of people) and for most of the people it’s really difficult to take that kind of risk, even thought they have huge passion and mindset- their situation just does not ALLOW IT. Do you really agree to it ?
Would you like to share about your experience and thoughts on this topic ? Do you really think that home loan (or any such kind of huge responsibility) really kills entrepreneurs and stops people to explore low paying but hugely satisfying careers ? Really ?
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170 replies on this article “Does Home Loan kills Enterpreunership ? May be YES”
I am also trying to start my own venture since a long time but being an average software engineering professional who is so attached to his job that didn’t change company since last 9 years its not a easy task for me. Now after getting some onsite opportunities I could be able to almost pay off my loan & hopefully be end of 2016 I will be loan free.
Now I can think to pursue my dream of becoming big some day.
But I whole heartedly agree this home loan is dream killing machine. But never bury your dreams keep them alive & fueled you will be able to pursue them someday.
Thanks for sharing that Neeraj
Very well written article Manish.
Glad to know that Spandan ..
Interesting blog: Let me tell what I did to save myself from home loan and fund my dream venture. I did bought plot near Pune, around 3KM away from muncipal. The area falls under grampanchayata. I built a small bunglow and rented it. It is giving 60% of amount that I pay as rent in Magarpatta. So I have feel and proud that I won a bunglow as well as I stay in posh area like magarpatta. With in 4 year I closed the plot cost and construction cost which I borrowed from my relatives and my gold loan. Now I am EMI free and building fund for my dream venture. Again It is my individual case. while people are paying EMIs and I am saving same amount for my venture is worth to be happy.
Great a great trick 🙂 .. thanks for sharing it !
Its really true……its as good as entering into new life…….where risks are more which you can tackle if and only if you have less bills to be paid up……will be taking up this path just because this reason
Good to hear that Praveen !
I have read this article today only but sold my house last month ,after 7 years and I discovered my own reason was almost simillar to the one mentioned in this artcile 🙂
Anybody in this forum, if you want a startup member , please let me know.
Good to hear that . why did you sell the house ?
There’re couple of reasons, most importantly, wanted to be a debt free for venturing into other areas, overall downturn in the realty market, have cash and pick a good deal at bargain price 🙂 Thx.-Raj.
yea .. its very important that one gets out of debt before venturing out in something , In my next post, this is one point ! .. i will quote your remarks there 🙂
Good to hear that .. Goodluck to you
Nice article! I have one question. Is it good to pay your home loan as you save some money? I am confused that should I pay some part of my homeloan or spend that money in some immediate need like home furniture, car purchase, gold etc?
HOme loan clearance can be done is emotionally you are more comfortable without a loan on your head, but as far as you are able to service it, you can just go ahead!
Sorry, I meant “commend”….
Thanks Manish for your reply. And I wholeheartedly comment you and Nandish for helping people find those ways:)
Interesting post. While everybody has focused so much on the aspect of having a liability (loan), I think there has to be some discussion around expense management too….
Agreed, there is a liability – but all one needs is 2/3 years of (living expenses + EMIs) in your bank account and then make a start. So, for building this corpus, one might have to wait 1,2,3 years and that is a test of patience…
I have a few thoughts that I think might add value to the insightful discussion:
a) Settling down expectations with family (especially spouse), that the cushy life may not be that cushy for next 5-10 years….we might not be able to go to a single vacation!
b) Preparing a detailed cash flow statement in Excel setting down clear saving goals and setting aside the amount for each month – (if one has a home loan with SBI Maxgain, one can transfer the amount to be saved in the Maxgain account at the start of the month)….
c) Now, if your savings are not enough, there are 2 options – move into a good paying job…a switch can lead your take home increase to 15-20% or aggressively cutting down on expenses or a combination of both…
d) Maintaining a daily expense tracker – so that one becomes aware of your discretionary expenses…spending less on eating out, getting down from auto a km/ before and then walking to save a few rupees, child can be admitted to a SSC school instead of IB school….(this can really test how much one is committed towards the goal)
e) And yes, since it can be another painful 2-3 years till you reach the goal, to counter the frustration, one can start helping out people for free and building good will in the process (I read a great article in HBR on the power of small wins but I am not able to locate the link)
I hope this can help in a small way.
Yea these are some of the good points , at the end, I think if a person is really committed , he will find out different ways !
I agree with many.It is true in general. But some exceptions will be there as agreed above. I want to share my experience. When I joined bank 21 years back, I felt’ I will be quitting the job at 45′(Don’t know the exact reason for my feeling). 6 years back I availed housing loan and purchased house with Rs 16 lakhs (including regt). Now I came to know that I can get about Rs 50 lakhs if I sell it now. If I want to start my own ‘work'(by the end of this year I will be crossing 45), I can close my housing loan and start my own work by disposing my house. I thought of resigning to implement my plans several times. It did not happen, because I was not serious, externally. But now, my house is giving me confidence that I can have my own money. Without Housing loan I could have missed the house. If you purchase house which can appreciate in future, your house with HL may not come in your way. If you want to start your work, you can extend the security of the house for the loan of your business/ unit also, without disposing it. My suggestion- If there is sufficient time to pursue your passion, if the value of house is within your financial (own+ loan) limits, If you feel that there is scope for appreciation, when you are not sure of the timing of your exit, don’t lose the opportunity of house when there is scope for housing loan.House gives you the feel of security, satisfies your family members and to you(Really). Eight years back I wrote one article in Eenadu news paper-Your house repays your housing loan. After 2 years of writing that article, I purchased my house and realised that my article is correct. Soon, I will be getting the rent required for my housing loan EMI. When you are calculated about your plans, housing loan will not come in your way( I have selected growing town for my house, I have seen rental value. I purchased when there was no boom)
Thanks for sharing your experience .. While all the points you have mentioned are correct and true , The motive of the article was just to communicate that housing loan becomes a hurdle for many people to enter entrepreunership ! , do you agree on that concept or not ?
I agree with many.It is true in general… These are my starting lines. I agree. It is true. Housing loan becomes a hurdle for many people to enter entrepreunership. But if there is chance to get affordable house funded by Housing loan (not with own money.. I prefer to accumulate my money for my project) in the above said circumstances, I prefer to avail housing loan. I can use it for my project.
hi manish, my dad always says that i should look for a govt job, as it will make me secure, that was 15 yrs back, but i always wanted to do something of my own, today when i conduct financial awareness training in companies i tell this young guys to do what their parents used to do, they used to save and invest and before they retire they plan to buy a house, they dont have any stress , I just followed my dad way of saving and investing, today i have bought an house in cash deal. so i totally agree with you lot of my clients are talented, they can do wonders, but home loan emi comes in their way, we are planning to close the loan as soon as possiable.
Thanks for sharing your story and what your clients are facing !
Hi everyone I am interested in becoming a social entrepreneur and have some great ideas!!!! I am currently working with an MNC(analytics firm) but really would like to become a partner in a startup. I live in East Delhi,so if anyone is interested please respond me back 🙂
What kind of ideas would you like to work on ?
There this is beautiful quote: “First you own things, then the things own you”
Really a great one !
Nice article Manish.. one need to assess his/her financial very well before getting into.. long ..committment of home loan, especialy if one is looking for real easate as an investment.
A decent 2 bhk in mumbai will cost approx 1 cr.. in normal situation an individual would require atleast 1.5 lakh consistent earning per month( accounting inflation ) to afford a home loan to fund the house.
India witnessed biggest rise in house prices in world since 2001…. will this continue … or a big correction is due…
I am no one to predict it .. the same situation was there in US , but finally it busted .. but in India it can take time
india is an country where jobs or always less than demand.& its full of competition & race even for a under paying job.in this condition ,no body will get a proper job & if they got by chance job satisfaction,will remain b a question.
i will not say entrepreneurship but a self employment in any fild required very much.
we cant expect 120cr + population can get desirable job.in this condition we dont choose,we only accept.
& thats is the primary couse for unsatisfied employment.
Thanks for putting your views 🙂
Good one, liked the real-life examples. I feel home loan not only kills the Entrepreneurs but also the salaried class.
Rakesh.. haha .. good way of putting it !
Nice Article Manish!!! I am a regular reader of your blogs on various financial subjects and every blogs has something to learn. This one also has the same learning.
We all know by heart, that any liabilities, be it home loan, car loan, personal loan kills your risk taking liabilities, but we still go ahead and take it. Be it peer pressuer, family pressure, high ambition we land up in taking this high end liabilities and then spent all our efforts, energy to pay this off. Same for me also: I have two home loans which holding me back to take any risk in my career part. But I have a plan to pay this off quickly and get myself free from this liability. Hope I will be able to stick on this plan and make myself free.
Just one thing: again this is part of another liabilities: many of my friends have taken up or plan to take up Holiday plan from Club Mahindra and they are asking me to take this up also. I know my bottom of my heart that this is not worth and again put me into a liability trap, but I am not able to analyse it properly to reach to a conclusion. It will be of great help if you can post a blog on this and provide some analysis.
Again Manish, you are doing a great job through this blog. Keep this up.
Thanks for putting your thoughts Abanindra … the thing is if you are really passionate and clear that you want to start something on your own , you will find a way .. be it clearing off the loan fast , or whatever !
Hi Manish ,
Sorry for the late reply.A bunch of them really, one is related to a website on which I have started working,others are primarily related to social infrastructure but require much more capital,so I guess the best way is to get a website.I hope that I can finish it soon and will obviously come here for guidance.
Home Loan is an ASSET on the bank Books
Home Loan is LIABILITY on my Book.
No prizes for guessing who’s walking the plank
Good one !
As far as possible we should stay away from home loans. We should explore low cost Tier II and Tier III cities where we can buy home from our saving or at least take a minimum loan. It doesn’t make any sense to take, say 40lakhs of loan for a 225 sq foot room in Mumbai. It’s time rural part be considered and we expand from limited cities.
Not sure if that should be the final conclusion .. this article only wanted to highlight the issue enterpreneurs face with liabilities like home loan !
Home loan is like paying rent in advance for our children…we hardly enjoy the time, till we finish our EMI…home loan creates a internal owner of our house,who do not let us sleep till we finish the due EMI. 🙂
Thats an excellent definition of home loan I must say ! … great !
Instead why should the home loan not mke you just work harder generating additional active/passive income besides salary?
Working hard to pay EMIs….thats good..make a person work for 24 hours…leave all other things behind…where will be life ?
I am not meaning work 24 hours. Instead of thinking the home loan as something that bogs you down it does help to identify additional sources of income.
It can be writing about a hobby in a blog – like photography, gardening etc. If you have the passion for the hobby it will generate audience and cash flow.
How else did Jago Investor and such sites came into being? If JI was treated as a job then the passion would not have been there to grow this site. Blogging is not the only way – one can even think about taking weekend classes for 1-2 hours alone for students, say in a academy? This will barely be any money but will improve someone’s presentation skills and communication skills that can differentiate you at your work place and put you on a faster growth path.
What I am saying is the home loan can also encourage people to think making more money in other ways than being bogged down by the load?!
Good one .. totally agree !
Dear, I am not against any part time job option. But, just think from a common man prospective, how many can write good blogs, how many are good photographers, how many does realy have such superb creative skills. And, giving tutions is nothing but a contribution to the paralizing condition of our education system, which is spoon feeding the children. And, that is why we are not listed among the top 100 countires, doing good in research works. We are just becoming a cheap n good, white color labour for Western Countires. As per a quote i read somewhere, “Our life expend iin proportion to the risk we can take. I just want to tell people that, instead of getting trap in home loans, one should take a risk to develop his or her passion in a successful venture. If it would be successful, one would realy be in a good position and more confident about life.
Nice post as always. Here’s a story on ET today related to this topic:
The key takeaway for me is – home is not the only target, it is just one (but important) of our financial planning. Honestly paying EMI’s for 20 years to own a house is very boring and tiring. I read somewhere that on an average people clear home loans in around 7 years. That should be the target prospective loan takers should aim for. Going after a luxury home that is not affordable is nothing different from going on an international tour on credit card.
I agree to it , home loan is one thing , but may be one of the biggest ! ..
Your article was both timely and gave one more reason to jump on my planned start up at the earliast.Luckily for me the EMI is less and managable.I am shelfing my plan to go for a new DU at my working loc and escape from EMI trap and conc on my startup.Thanx.
Good to hear that !
Being an avid JI reader I dont agree with this completely.
After all its all about financial management and risk mitigation. I know few people who have started and doing well, and yes they were having big home loans.
Its how do you plan the gestation period for your startup as thats what you are going to show your VCs that after gestation I’ll be cash positive or break even (On a personal level you should plan for your home loan EMIs as an expense too during gestation).
Yes it does shake your confidence if you look at yourself in 50-60 lacs debt when you plan to quit your 9-5 job.
Surprisingly this was the first time I read this blog on pluggedin 🙂
Obviosuly it wont be true for 100 out of 100 people .. we are talking about 95 out of 100 people and you are talking about 5 out of 100 people 🙂 . yes this post was guest posted on pluggd.in 🙂
Its true …. Entrepreneurship may not be affordable if suffering from Home Lone EMI alignment.
But a bit off the topic question, would you suggest to rent or buy for someone who wants to continue his job and would be in same city? Say he is a doctor/teacher/ advocate etc…
Does renting give us a false sense of affordability? For e.g. someone may not afford to buy a house of 1Cr, but he can stay on rent on it for 20K pm. This looks ok during our earning period; as long as our salary increases along with the rent – not an issue. But the scenario would change after retirement. Your thoughts?
If you dont accumulate enough wealth in your life span so that it can support even your retirement , then its a mistake . Other thing is how your children will do , will they have their house or not, you can also live there. . but over your working life you can acquire a house
depending on children is not an option for the ppl are in 30s or 40s now… it is kind of difficult to accumulate wealth to pay rent for 30yrs of retirement life… also need to consider the diffuculty in shiftin in old ages.
Yes Ram .. we are living in an era , where we have to take care of parents , ourself and children 🙂 .. this will not be the case after 30 yrs , unlucky we !
This is what is called connecting the dots. We know people take home loans as a norm. We also know so many people with dreams that are sniffed out. But Binny connected the 2 for us.
Thanks for the article. Wish it is taught in the school instead of subjects which we never us in life!!!
Yea .. its a tough choice not to go as per norms , but then its not every one’s cup of tea !
I would like to say, All this reminds me a famous book “Rich Dad Poor Dad”
Purvesh 🙂 .. good to hear that
A different view of this argument can be as follows.
Here we are trying to match two disjointed issues. If one is hell bent, he will try anyhow. If not(like me), he will not try, home loan or no home loan.
However point taken is that big debts act as a deterrant for pursuing the dream projects.
Thanks Manish for the insight.
Thanks for your view Srinivas
Though i accept that big responsibility(not only home loan but issues like family responsibilities) can deter one from venturing into unsafe territory, that need not always be true.
In fact, if used prudently, a stable employment for some initial years can make one much more capble of succeding in a new venture.(If these initial years are properly utilised to learn relevant skills for the venture)
I would like to highlight my own case in this respect. I took a home loan five years back. Though tenure was 20 years, i could payback 75% already. Balance i am planning to pay back this year.
Yes, i have a plan to venture on my own after some years(5-6), by which time my elder kid will complete his graduation and be on his own. Am planning to use the interim period for financial consolidation and training myself in required skills.
Hence, it all depends on what one passionately desires.
Agree that its not always true , we are talking about how majority of people feel. Thanks for sharing your experience 🙂
Very much agreed.Having financial independence is very much needed to go ahead and take bold decisions.I remember reading Chatan Bhagat in his novel Two States,which is supposed to be his own story,saying he plan working for a corporate bank for two or three years,earn some money and switch to his dream job of writing.
Yes real people do realize their dreams with careful planning.
Thanks for your views on this topic !
Not just kills Entrepreneurship, but a small thread continuously runs in mind which keeps you tense and affects your lifestyle. Having family, Home loan and if income is unstable & insecure then its nightmare. I have good income at present and stay on rent, my relatives (including parents) many times pressurized me to buy home (via loan) but when I draw scenario having home loan (big financial responsibility for 15-20 years) then I feel that I may not live standard & happy life. Same scenario when I shared with my parent they agreed with me 🙂 and told me to stay rented and happy. If I go for Home loan then I may not live remaining life Good & Happy. So staying Rented, Happy, No Tension :).
Good to hear that , its really tough to go that way .. I agree that being rented is going to not make you loose your sleep , but then people complain that rented places are hard in life , i mean what you do if you suddenly change the place , a lot of disturbances take place like change gas connections , move children school or they travel more and those kind of things . what are your views on those !
Agreed with issues you raised for being rented. My view is that one has to choose and decide:
A) Choose to own Home via Loan and be tensed, stressed, sleepless and make big financial commitment for next 15-20 years.
B) Choose to be rented and tackle with moving, schooling disturbances.
Its personal choice either to go with A or B. I decided to stick with A until I get good cash on hand which could allow me to buy Home as well as give good sleep.
Based on my experience, I believe that in life many times one would have to choose ONE from many options. What do you think ? 🙂
Yea that true 🙂 . at the end only you can decide what you want and which side is more stronger in your case 🙂
We barely come across anyone that does not want to be a entrepreneur. However majority of the people want to pursue entrepreneurship just because they hate their current job/pay.
Home Loan is a shadow behind which people hide and console themselves that they would have pursued entrepreneurship but for the loan, in my opinion. Remember that most people WILL atleast break even if they are to sell the house after 3 years of possession (to avoid short term tax) use the proceeds to close the loan and pursue entrepreneurship. If not 3 years it is usually possible in 5 years for even a 10% – 15% appreciation – In that duration it is usually sufficient to break even (remember the down payment is usually 20% so the 80% loan amount invested also grows for you). In reality, in spite of all the so called slow down in realty, the property prices have not dipped in almost all of India (some pockets did) rather have shown at least modest increases if not huge.
If people really have the fire and passion in their minds they will at least sit and calculate what may be a breakeven point to get out of the loan (with an asset in hand already). However since majority want to pursue entrepreneurship just because they hate their current job/pay they will never take this decision!!
Thats a really good point you have raised , that having a home loan does not mean that you can sell it and come out of it , the thing is COMFORT ZONE, once you have a car , home and are comfortable with it , selling it off and getting out of the loan seems to be like such a tough thing !
Hi, good to see all comments.
entrepreneur article is good
Is it the way we can move out from home loan
How v can manage to clear loan amounts.
You cant get out of the loan just like that, but you can get back to the situation by just selling off the property and getting back in rented environment , thats all i can say !
one should agree most of the employees like us secured homes through loans only. thinking of loans it should not be 100%, one should analyze the comfortable savings from their income towards affordable home loan and taking other priorities in to the consideration like family financial protection, child education and marriages etc. purchasing plots in lower costs will give some satisfaction of owning the property. and get appreciation year on year.
Thanks for sharing your views Prem !
My First Comment… Can say could not stop myself…..
Home Loan Trap and Rat Trap are no different. Once a Rat is caught in the Trap there is little that it can do. Same is in case of Home Loan.
I at times compare Home Loan To Chakravyhu, There are lot many abhimanyu’s who are stuck in it. Unless you are Arjun or tend to learn the skills of Arjuna, there is no point in getting into it. Honestly i personally feel Renting is best bet for young professionals
Thanks for sharing your views .. looking at the person as abhimanyu was very different way of looking at it 🙂 . liked it !
maja aa gaya…
Good to hear that ! 🙂 . DO you have any experience to share ?
I think i can identify with what all these people are saying. In my case it is the fear of loan itself that makes me a ‘coward’. I have been admitted to an ivy league college but the cost is Rs35 lakh. I have dependent parents and am too afraid to take a loan as i keep on worrying about what would happen if my parents fall ill. They are over 65 and don’t have any health insurance. I am banking on scholarships but know that if it doesn’t come through i will not take up the offer, although i know once a pass out of this college i will be in an entirely different league. So i don’t think its just home loan that prevents you from daring…several responsibilities do:-)))…
Nice to know i am not an exception to the rule)))
thats true .. its not just a financial liability , but even other kind of responsibilities 🙂
Just wanted to add a thought here to a very important discussion, and in response to Mr.Ravindran’s comments.
I have seen many of my peers from the IT industry see entrepreneurship from a very western view. This is also the case with the NRI who return after working in the developed world for many years.
Entrepreneurship in India is a different game. While there is an upper creamy layer which has a western worldview, shops online, owns smartphones, and the solutions for this segment can mirror the “ideas” for the western world.
However, most of the enterpreneurship for the “real” India is a different proposition. This is about dealing with government overhang, about large unskilled aggressive youth, about high cost of capital, working in difficult physical, and emotional conditions, and about high risks. Very similar to farming!
So this is like the “electric shock” I referred to in an earlier comment. Many of us prefer to remain “stuck” in a extremely boring job, because we are aware and also afraid of the larger uncomfortable situation under which we must perform. The alternative to a cushy IT job is to work hard in a very challenging and difficult environment, and maybe we might end up without earning as much as an IT job! So we prefer to be fed in the cage, even if we are progressively fed less (if you do not believe me, just look at how the pressures of life are increasing for even the well paid IT professional)!
But this is the choice we must make. This is the real India in which we must grow, and also the real India in which most of our children will grow (I do not know how many of us can send our children abroad and ensure that they live a good life there, I think not more than 20% of us since the West is also not growing much & is a difficult environment now compared to 30 years ago).
For those of us who want to venture out, its time to build resilience, and also time to understand that Indian enterpreneurship “might” yield less in monetary terms, and is more about the painful building of physical and social assets. Maybe our children will reap the fruits of what we sow in this generation.
Wow.. one of the most amazing comments every read 🙂 out of 30,000+ on this blog ! .. keep it up .. really an amazing comment and an honest opinion . Sir please keep commenting more 🙂 . We need these kind of thoughts !
One more comment, I named this the cycle of virtue and wealth 🙂 : Build India = Build Assets => Put purchasing power in the hands of people => Offer products & services that these people will value and purchase => Create wealth for multiple generations.
Fruits of being in this cycle of virtue = Enjoyment and inspiration, wealth for mostly the next generation and beyond.
And to enjoy being in this cycle where the timing of financial & societal rewards are uncertain, keep liabilities to the bare minimum (like home loans). One cannot run a 100m dash with a 20 Kg bag slung over his shoulder!
Truely speaking it was little tough for me to understand exactly what you want to say 🙂
Hi Manish ,
It was really nice to see a post that is inspiring people to try !:).
I know this post comes from your experience over the last couple of years.
The major problem is home loan interest is not considered a liability or waste but a miniscule rent is considered wastage . Ownership bias.
A home loan makes your exposure towards one asset class where the assumption is prices will keep rising at a very high rate. What if real estate does not keep a similar pace of growth like last 10 years or if it has a few bad years.
Also Manish how much should one consider as a percentage of net worth to be in Real Estate ? ( considering the fact the networth is white )
Hope you are enjoying being on your own 🙂
Nooresh, very true. Especially at the land prices in India. Supply of Indian land is still highly controlled, and is in the hand’s of a government backed Mafia. So we need to decide how much of our life are we going to hold back, to repay a housing loan to purchase an artificially expensive “asset”. Yes, property will appreciate, but only due to artificial means. And what if the grip of this Mafia loosens, surely the bubble will break then! And surely this Mafia cannot sustain this for long, especially when the country hits a growth bottleneck due lack of entrepreneurship and asset creation. And those who bought at high prices will end up holding an asset whose bubble is broken by the fact that there are no more citizens who earn enough to pay for their rents/EMIs, let alone other needs of life.
A very good comment i would say, a very small section of our society really understand things at this level 🙂
Percentage of networth in real estate is obviously a personal call, but given that its such a illiquid thing , i wont say more than 40%
It is obvious that we must save before we start off with any venture. Thus I can be sure that I will be able to pay off my EMI(s) and expenses.
To all the people who have successfully troded down the enterpreneurship path, what do think is a safe savings ratio?
For example, If I have X savings and my monthly expenses are Y. What do you think is a safe X/Y ratio? Basically how long can I explore before returning to a safe job? I also understand that the risk/ratio could be different with different businesses. But I would like to get a ballpark.
Obviously, I am thinking of starting off something and obviously, I have a home loan. 🙂
I think the more the better, but one cant have unlimited saving anywyas .. so if you can save around 3-5 yrs of expenses + 20% cushion , along with your confidence that you will be able to get back in your job ! , then its a safe thing to venture out !
You give me confidence; man!
Why is no one talking about gradually shifting into your venture? We can keep an overlap of 1 to 2 years while we are getting comfortable in our venture. Thats when probably the investments may start paying off. Of course, I realise that this transition pattern may not be possible always.
I would say just give it a shot .. Once someone asked me how can you leave your job in YAHOO ! .. so my answer was “because I dont want to take risk in life” ..
You tell me , if not in this life , then when ? If not you , then who ?
Thanks for guiding sir. In a nutshell, i would say grit matters more than your bank balance!
Yes! Absolutely true! The post gives an impression as if its our story. But what is the solution. Those who have already entrapped in such situation, may have to scarifies their dreams for ever.
Are you open to get back to that situation where you didnt had a home and a loan ? can you sell off your house and pay off the remaining house ? obviously at a profit (it has to be in profit by now) . Do you have that desire and passion to sacrifice it ?
Manish, this post of yours’ is the part of my discussions from past few weeks with my colleagues, with whom I am sharing the idea to start our own venture.
My close friend and even me are stuck with this Home Loan Liability thing, which is stopping to take any strong decision in professional life. We both know how much important it is for us to take care of this liability.
My strategy is to keep some reserve for meeting the (EMI + Home Monthly expenses) for few months (How many months? – not calculated yet)
But as of now, irrespective of liabilities, I am working on “Planning” of my start-up and apart from that motivating my friends to be part of my team. As I need their support (mainly morally & intellectually) so that we can act complimentary to each other.
Its not like that at present I am in wrong Job, but I am very much sure that I will not be doing the same job over coming years..
Moreover I want to taste Entrepreneurship… Its said that, “There is no gain without pain” I am sure its going to be difficult (specially during start). If we overcome starting friction/ hurdles, the most important one, which either make us or break us, we can carry on the success..Day to day challenges after well establishing the business can be handled with relative ease.
Regarding your post and web, it touches the lives of many people, I am very much sure about it.
I am going to forward this article to my friends…
Good to hear your case , I think being EMI amount such a big amount in most of the cases, it would really be tough to keep 2 yrs of EMI’s Expenses ! . Its not easy ! .
We can have many school of thoughts whether entreprenuership is the ultimate thing that one should aspire or plunging into business means you are more likely to be successful.
Let me share my story of home loans vs professional journey. I had taken HL at 7.25% which was perhaps lowest in Indian history and I was a proud owner of 2 homes. Within a 1-1.5 years, the tides turned otherway. I must admit that I never understood the power of floating. It was a new concept. There was drastic rise in EMI payments in 2 years time and even the tenure was stretched beyond my retirement. I even wrote an article in one of the local edition that whether my home loan would ever be repaid. Huge response was recd.
Although my company was good and am quite satisified with pay & work, I was forced to come up with something to cope up with raising EMIs. I have tried and taken the employment abroad. I could clear both home loans within 3 years. I was not peaceful until I cleared this loan. Certainly home loan pressure inspired me to look at other avenues of existing comfort zone. While it worked positively in my case and but could have back-fired if something gone wrong with my overseas job.
This is really a nice experience which shows some good reason why one can take a home loan . Worth sharing in an article 🙂
Its from my flat in hyderabad which i bought for 40lacs and is fetching me 16K as rent. Also, in savings under Homeloan 0.05775 is nothing but 0.0825 *.70% as 30% is taxed for the interest earned.
Rent/Home price ratio looks very good in your case, but is that a general ratio or special in your case ?
It is general in case of Hyderabad where the prices have not risen much. In specific to Hyderabad due to Telagana issue the prices have rather been static for the past 3yrs or so.
My flat is in the IT area close to the Financial District of Hyd thus enjoys high rentals. Infact newer constructions with amenities ask between 30-35K and cost close to 90lacs.
This was one reason why I chose to buy the house comparing rent/home price ratio in Delhi (my native) which at that time had similar rents while flat cost was more than double.
W.r.t. those who have a home loan I would suggest to reduce your emi by partial monthly down payments instead of reducing the tenure thereby reducing their annual liability. This would help them create a smaller buffer whenever they want to start on their own. Cost of funds over the years will only diminish in value.
I do agree and thinking over the same. I ran some calculations dunno if they are correct though. Assuming I did not have an EMI and the same amount I invested yoy (compounded) in FD after 20 yrs. I would have had 24000 Crores while when i go for a home loan I would have about 1-2 Crores.
Sharing the link with u for the same.
How come your saving each year is doubling ? I am not sure on that. Also the assumptions will drive the amounts . You have taken into consiration 16k as rent for something which has 40 lacs of value , not sure how much right that is
Thanks, it was suppose to add annual savings of that year instead rectified the same. Now it seems HOME LOAN is better, not to forget the value of the flat would have appreciated further. Update the link with the new file.
To add , i think in that calculation you are not considering the value of the property which you would have got at the end of the tenure , though there is bound to be some depreciation.
ok .. a lot of things will depend on the variables and we can always take assumptions which confirms our thinking .
One more nice article.
unless u have huge amount to pay as intial payment – it’s not advisable going for home loan. But many thinks d same – investing in home is blocking their hard earning money – still sentimental feelings over come and ended up in buying home.
Thanks for your views S Gopal 🙂
Awesome post buddy!!
The problem is that most people will agree with this thought but how many really follow this path. Thankfully I have not taken any home loan and don’t intend for it anytime soon.
One option that might help (to reduce risk) is that one spouse be salaried and the other ventures into entrepreneurship. This way the risk is reduced and you can enjoy both the worlds. Also it may help if husband-wife are in different domains. This is from my personal experience.
Having a working spouse who is totally in different field is really a great idea and one of “trick” to really plunge into starting something on your own 🙂
“He that hath wife and children hath given hostages to fortune; for they are impediments to great enterprises, either of virtue or mischief.” – Francis Bacon.
I didnt understand that !
Same thing. If you have wife and children, your risk appetite for any enterprise is reduced. It is true. You will take less risks, good or bad.
Yes , each thing which you can put in category of responsibility will reduce the risk
I am appalled by the blog, one way it seems to be real and another way puts in mind that loans as a whole is road blocker for venturing enterprise.
The article is so one sided, thinks only of that software department of the salaried class, who are supposed to paid well than their counter parts, who make their earning. Since Most Home Loan takers are from that sector, article pinches their back for rethinking.
Enterprising in software, thinking of own, means, I believe is human oriented with little back up on hardware and machines. It is your own skills like that of the doctor, lawyers, propounds your professional skill with that your contacts developed, takes you forward in the business with very little outward dependance. OH, am not under estimating the efforts involved.
Take for other industries. Can you think of starting one without loans? Small scale industry, they are both machinery oriented, man power oriented and management oriented and selling oriented. How many will make stake with or without home loan? Who is willing to toil in the hot sun and not musky working environment to make an earning? How come mechanical engineers and name any other engineering discipline , who have acquired the skills to become software engineers work in soft environment ? Principally no body wants to put up manual work in a harsh climate. This is the fundamental for resistant to entrepreneurship since we have no value and pride in our own labour? We do not have people to do manual and physical work. This is the status of affairs.
In my case I was running my company of my own, [ I am now 62 and I never worked under anybody right from my getting out of my engg degree],I come from a middle class family. When I approached the banks, banks wanted collateral, I could not find. My father gave his gratuity and pension benefits to start my benefits that Rs 31000/=. He was my inspiration, who wanted me never take up employment under any circumstance, even though he was employed and retired. When I approached the Government for registration, they asked for my market worth certificate and my experience in the business? I am fresh from college.
I know what it is to be a self employed. I struggled to get things over and when I wanted to marry[taking up liability?], people were not interested since I do not have permanent income? How many will be prepared to undergo this kind of hardship? I am one of the happiest person, in the matter of my achievement. I learnt everything by burning my midnight oil.
If you have family business running, you have the means of running the show and not like me who started from scratch.
To be an entrepreneur you should be very bold, you marry your profession, be a slave to your work, executive of your faith, owner of your mind. If you have it, at present environment, any body can profess any profession and take pride in what one is doing.
YOU REMEMBER WHAT YOU DO IS DIRECT SERVICE TO THE COMMUNITY, YOU HAVE PROVIDED EMPLOYMENT TO SO MANY WHO COULD NOT REACH OUT TO BIG COMPANIES AND YOU HAVE FULFILLED YOUR DESIRE TO BE YOUR OWN AND BENEFITED FROM YOUR HARD WORK .
This mindset of challenge up should BE BUILT IN , then no home loan and liabilities can prevent you from being independent.
So at the end what is the conclusion you are making ? While I agree with you that if you are “really” passionate , nothing can stop you, we are talking about what happens with majority of people here 🙂
Actually Ravindran is trying to point out that – now a days most people buy a few computers and then start a new company through contacts. Even they may sell final products but software management is important part in that. Ravindran is trying to explain that it should not be called “Entrepreneurship” as merely sitting before a computer and working through contacts does not make you a REAL entrepreneur. He gave his life example on what should be called entrepreneurship.
A software guy is probably trying his luck with a job and already saved money to fall back on if his company fails. That is not called entrepreneur as per him.
I hope I understood his explanation.
Ohh ok .. I think I also got it now 🙂 . thanks for clarifying
being an entrepreneur is not a get-rich-quick scheme:
it takes strength of character to keep going.
Nice thought provoking article. I see two facets to this.
1. In Cities like Bangalore (or similar) house & plot rates are increasing day by day & even rentals have touched roof tops. If the housing loan is 20%-30% more than what u pay for the rent, it shouldnt affect much. Job/income insecurity would effect many other facets of life not just Housing Loan. Getting married itself hinders ability to shift jobs at will. So I think housing loan alone is only part of the hindrance.
2. If the startups planned doesnt really require lot of capital (say online business) and if one has good circle of friends who are willing to invest on his idea, funding should be a difficult to acquire. That way, if the idea has potential it can always fly.
Thanks for sharing your views 🙂 . I really dont know anyone who has just 20% or 30% more EMI money than the RENT , unless they fund the downpayment for a big amount. Take for instance , in bangalore an average rent is in range of 12-15k for a 3 BHK , but then the house will cost upwards of 60 lacs atleast , so if a personal takes a loan of even 40 lacs, the EMI would be more than 35-40k per month , which would be 2-3 times of the session !
I’m with you if we consider higher range (and lower range for rentals) 🙂 Just that rentals in areas around IT establishments is around 15k for 2 BHK (I pay 14.5 in not so good area but yes closer to my office) & New apartments (2 BHK) around new areas (nor far, just around EC) are around 30-35k. so with nominal down payment, one can still be able to afford EMI without much diff in existing rentals.
I agree with you that if the investment is higher on setup & running costs then Housing loan (& other liabilities) are an hindrance for sure.
So the flat for which you are paying 14.5k , what is the cost and whats the cost in case of those 35-40k rent flat ~
Manish, Sorry for the mistype there. What I meant is, I pay 14.5k rent at the moment & New flats are available (to buy) at 30-35 lacs with moderate amenities. Ofcourse there are premium flats which would cost way higher than required to be.
If the final price is 30-35 lacs after registration and other things , then the rent ratio is really really good . I am not sure how many places in bangalore fetch that kind of good rent ratio !
I didn’t expect this kind of post to come up on your website but it did and am I happy!
Well, I absolutely agree that a home loan will kill entrepreneurship. Unless you are a NRI, who has returned after earning mega-bucks!
Anyway, I speak from personal experience, when I say that not having a home loan has helped me make more flexible career choices. Right now I am working in a startup which offers me work satisfaction and gives me the opportunity to do something exciting. It also has given me a steep learning curve and the freedom to explore. All this would not have been possible with the burden of a home loan hanging around my neck.
I totally agree that there are ways to make it work with a home loan but it makes it that much more difficult. Anyway, who would want to wait another day when you can take the plunge today!
Also, agree that social pressures, specially from family, for purchasing a house now and saving on the so called ‘wastage’ on rent makes it difficult for most people. But it’s important to take stand. In my mind, I work it out like this. Not buying a house now, and investing in a right career now, will not only help me do something I love and give more satisfaction but also enable me to buy 10 houses if I want to, when the pay off comes. 🙂
Anyway check this link too: http://www.subramoney.com/2008/11/rent-vs-buy/?dhiti=1
Thanks for your detailed and directly from “heart” comment 🙂 . I can see the genuineness in the comment and what exactly happened in your life . Some where its true in my personal life too and many more people . But a large section of society get time to think like this only after they are already IN the life cycle of job-salary-EMI-Homeloan-job 🙂 .
I hope some souls take this path and see the fruits , I can say that this path is not easy and some hurdles are there, but then its a personal choice. A lot of people go regular path and can see the value/solution in that also , nothing wrong with that 🙂
Yes Manish. The path of entrepreneurship may not be for everyone. And it is also not as glamorous as the media makes it out to be.
There are real challenges. And even though I don’t have my own venture as yet, working in a startup, I realize it is very very hard work. There are so many risks associated that IT IS REALLY SCARY. But I guess once you have the passion, and the need to actually “live life” and to do something you love, there really is no choice. Like you said, it’s up to each one to find their balance in life.
All the best Manish, for your commendable work. I have not posted before so I take this opportunity to thank you for the great work you and your team are doing to spread financial (and “life”) literacy. May your hard work pay off manifold.
Thanks Hemant for your acknowledgement 🙂 . I know how tough it is to go the path of entrepreneurship as I am on that way myself :), its surely underhyped ! 🙂
nice post Manish. And thanks for including my earlier comment. @Jayaprakash above makes a very true observation. Often, its the parents or spouse that also influences one to take-up home loan even one has apprehensions about it.
it was good to get a perspective on an employer !
It is not just home loan, but many other liabilities that a typical well educated middle class professional acquires. These liabilities are acquired mainly due to peer and family pressures (we are still fuedal in our thinking and measure people by their pocessions, especially land and property). Cars are not for commuting, but for displaying higher social standing. Club memberships, home loans for “several homes”, car loans, etc all add up to the liabilities, and a constantly high income is required to service these liabilities. And any “high income” comes with a price to pay, which is to give up one’s core needs and completely surrender one’s mind to the needs and whims of the employer.
More than these financial liabilities, we also acquire many “thought” liabilities. We feel that we “cannot loose” and cling on to imaginary “social status”. In the end (at different stages), we realize that an entire life has gone by without living.
So its not just the home loan, but others like cars, multiple properties etc that also hold us from our life. More significantly, its the “thought” liabilities that we have created in our minds and which are re-enforced by our peers and family members, that keep us from experimenting and discovering our life…..
Getting out of these “thought” liabilities is difficult, they keep us in a trap. It’s like an animal who is locked up in a cage and well fed. And whenever the animal attempts to leave the cage, it is given an electric shock, so it gets back into the cage. After several such instances, the animal finally acquires its “thought” liability and says that why attempt to escape when there is pleasure in remaining inside the cage and pain when going out. So it remains in the cage even when the cage is left unlocked. And even when the feeding reduces each year, the animal “adjusts” to the lower feeding, complains about it, but the “thought” liability is so entrenched that the animal does not leave the cage looking for richer and healthier food outside.
Couldn’t agree more with you.
Do you also have any experience of yours !
So True. One of the best posts I have read…This was direct from heart
Wow .. what a well prepared deeply thought comment from you . It really shows the emotions and the exact way people might be experiencing 🙂 , Good one !
Very nice comment. I liked it a lot.
I was lucky to avoid a home loan while buying a house. But that delayed my home buying process by more than 5 years. But I am happy I have my dream house without a home loan and entrepreneurship is still alive. I always feared carrying the home loan burden on my shoulders will not only just kill my entrepreneurship, but it will kill all happiness, excitement for those 20 years till I don’t get rid of it. It is like a sword hanging on your head all the times, bothering you all the times.
I also agree ‘social status’ is more of a stigma. Have seen this in many weddings in our community. All the gold that is bought, the number of rituals / ceremonies / functions lined up just for ‘social status’ so that guests are happy, leaves the bride and groom’s parents worried. Many a times they end up in a debt trap because all of this social commitments. Its all a big waste in the name of the so called ‘Big Fat Indian Wedding’
Thanks, Gopal. The choices are within us. Often, we build up so many layers of thought within us, many of which are influences from those who are close to us and on whom we depend on for our identity. It’s a booby trap, very hard to come out of this unless we are ready to face reality as it is! And this is very challenging, even for the best of us. “Big fat wedding” is a way to pay ode to our identity, we derive so much sense of worth from the large numbers that attend our wedding bashes.
Having said that, the hardest part of a human life is to create one’s identity as a choice, rather than as an inevitable consequence of the words and deeds of others.
So go ahead and get a home loan. Also get a BMW. But as one’s choice, rather than a need to get acknowledge by others. This way, one will enjoy the BMW rather than be burdened by it.
Not being in debt is a way to free oneself from the need to earn income doing something we hate, in order to buy liabilities that other’s might admire us for!
But lack of debt does not by itself enable freedom and entrepreneurship. It is still left to us to choose how or why we will live our life, debt or no debt….
Hi Rajaram, your words and sentences are thought provoking. If you do not have a blog, please start one! Guess you can make ppl think and that is one hell of a service to all..
super comment rajaram sir
one of the best
Brilliant articulation of thoughts. Couldn’t agree more, certainly one of the best posts to have ever been posted on JI.
Thanks Anjan !
I cannot completely agree with it. I had a home loan and I run a company for 1 year.
What I did was created a Gold Deposit of 5 Lakhs while I was working. My home loan is 27k and the deposit is enough to pay for 1 year and other expenses it can manage.
So for 1 year i can run the company, if it flourishes and generates money I will create more money to run the loans forward. Anytime I can go back to my old job – and I should do so if failed in business.
So moneysights and flipcard officials are wrong. They are not fit for they stand.
Yours is a rare case and we already said in the article that it will not be true for 100 out of 100 cases . Majority of the people do not have experience and vision/passion/situation like you .
But people without vision/passion and courage will not be successful enterpreuners, even if they don’t have any loan.
Yes , but thats totally a different topic i guess
So what is the guarantee for 100 out of 100 people that they will get their jobs back after 1 year of break?
I know of IT professionals being benched for taking a week off.
True, very very true. Getting into a home loan is a big trap. Liked the article a lot. I also want to do something on my own. Still searching for that thing which actually I would love doing day-in and day-out. As you would have guessed correctly, I am just one of those many software engineers who works, not because I love what I do, just to support the family. Just to keep my options open for future, I never went in search of a new house. Once you get into any of these big liabilities, life dictates. And it becomes more of a life in which we are there to fulfill our duties than to go out and try something different and enjoy.
Thanks for sharing your views on this topic. I can understand your situation because at one point I was exactly in your situation, really really hated my job!
If you’re interested in being part of a start-up in Gurgaon, ping me.
I live in East Delhi,what is the startup you are discussing about? I am quite interested in being a part.if interested please respond 🙂
That’s very true and this is not only with home but any big liability which one takes up in their life. Most of the Indian families teach there children to be part of this kind of lifestyle from the day their kids start earning and many easily fall in to that trap.
Yes .. family pressure is a big thing and a big reason for this trap !
Totally with you in this.
Even if one has a home loan one should try to clear off as soon as possible.
It not only lets you live a burden-less life but also allows you the freedom.
Try to clear off expensive loans with investments which are really generating very low interests. It makes sense to clear off a 12-13% loan first or atleast by leaving a bare minimum for your tax saving purpose (though I would go for full clear) instead of a 8.5% deposit!
Yes Madhurie … One has to really see “debt clearance” as a project and set a clear PLAN for it and then stick to it , not so easy, but can really change the life !
Yes not easy but we did it 2yrs back. 🙂
By the way you need to write abt the workshop so that we can comment .
Workshop article will come later 🙂
Home loan is not the only thing that kills entrepreneurship but yes it reduces the risk taking ability to a great extent. Also a Home Loan and a Start – up venture usually happens at around the same age.
Thanks for your views Vishal
Wonderful Post. I am a continous follower and subscriber of your blog. Many posts has been wonderful but this one is the ultimate i can relate to it. Me and my friend developers who have high passion on starting up a company, we both are married and both have kids of less than 1 yr. We worked after office hours to make the setup and finally we started our company this new year officially quitting. We made a huge savings to run for next whole year in the same life style and to pay home loans. If we have not taken home loan we would have jumped a little earlier, how ever i see it in a positive way, it keeps us pushing like a fire under belly, we have to do that little extra and that deadline of payments are always there and a huge sum i have taken two house loans including one in joint . Both akes a huge chunk of money but i love it and it keeps us pushing we have to push push push harder to acheive and plan may be if its not there it would have been easy or would have put in comfort zone for years. But definitely Home loan is a killer 😉 be it positive of negative
Great .. your story is really inspiring and can guide as motivation for others who really want to take a plunge! ) . Keep sharing !
There is something called as “biological clock” and we must respect it before “pushing like a fire under belly” as you mentioned. Otherwise, in later phase of life the same clock push us for early quitting of life.
true words amol…! “zindgi itni bhi lambi nahi hoti jitna hum sochte hai…”
Yes, Invest time for health and it is more than any wealth you create.