Over the last 10-15 years, I've had quite a few co-workers from India, often here in Britain on short-term 1-2yr assignments. Many of them have been earning UK-sized salaries while here, but tried to keep expenses super low (often by having big group of people sharing a small apartment) with the express aim of going back home with enough money to buy a house/have a lavish wedding/retire early. So I'm kind of surprised that the concept isn't better known in India.
Hi Ceratonia,
Concept of saving money is well known in India.
Our government's job is to collect tax. We don't get mediclaim, social security, pension, have very few good public school, have sub standard public hospitals, etc etc.
Let me explain why Indians on short term assignment abroad save 60-80% salary.
Putting some numbers will give a better perspective.
In India someone with 5 year work experience (say in IT industry) will take home close to INR 1 Million = GBP 10k = USD 15k per year. (foreign exchange rates)
If this person save 50% salary, annual saving is GBP 5k (or USD 7.5k).
Please bear in mind, with a smaller salary base maintaining 50% saving rate is a bit difficult especially when you have dependent (read kids, ageing parents, non-working wife).
Now consider this person is sent to UK/US on a 1 year assignment with take home pay of GBP 40k (or USD 60k) per year.
Key personal objective of this person in this 1 years is to save a heck lot of money.
Say, this person saves 50% salary (conservative estimate).
Per year saving during these foreign assignments is GBP 20 k (or USD 30k).
As you can see, during foreign assignment even if someone maintains the same saving rate as they would have done in India, this person can save 4 times more (in actual FX rates).
This provide a huge push towards Financial independence.
For those on this forum wondering why salaries in India are so low. Quick explanation is PPP - purchasing power parity.
In 2015 foreign exchange rates, 1 USD = 65 INR (Indian rupee).
However, In 2015 PPP rates, 1 USD = 21 INR (Indian rupee).
For example, If a Macdonald burger is $5 in US it will cost 5*21 = INR 110 in India (not 5 * 65 = INR 325). Therefore, salary of INR 1 million has purchasing power equivalent to USD 47k (or GBP 30k).
But when someone is on an assignment to US/UK etc, this person brings back hard cash/currency which is converted NOT on PPP but on FX rates.
Hope this explains.
Side note 1: Early retirement is a bit difficult to achieve in India provided consumer price inflation rate for last 25 years averaged at 8% per year. For FIRE, investments have to be put in high risk areas with returns of 13+% just to pay off your expenses and maintain purchasing power of your investments. With higher returns comes higher risk of volatility. Having said that, I know few people who are actively aiming for FIRE.
Side note 2: I read the forum and people talk about house size 2000+ sq. ft. In India, a 1000 sq. ft. apartment is considered luxury and will cost north of 5 times annual salary for average person (may be 10-15 times in good locations). YES, maintaining a high saving rate is extremely important and a foreign assignment goes a long way in putting a larger down payment. Home loan interest rate from public banks in India is close to 10% p.a.
Side note 3: In India it is quite common for parents to cover the cost of kids college education. Because education loan in India is expensive. Public banks give loan @ 14+% p.a. Interest is charged while kid is in college. So If you borrow USD 25k for 4 year college education (current rate for good college in India), when child start working he/she would be looking at repayment on USD 40k. Maximum loan repayment tenure is 15 years. So repayment is USD 520 per month. This is higher than 50% of entire take home salary for a fresh college graduate. So parents save for their retirement and kids college.
Rant over. Have a good day.