Why India needs own set of personal finance concepts

Relying on Internet search will only yield globally accepted practices that are not relevant to the ground reality

Ravi Sinha

Updated At : 04:56 AM Aug 02, 2025 IST

A stable asset allocation in the Indian context is to have a 40-40-20 approach — 40 per cent in property, 40 per cent in financial products, and 20 per cent in gold and other assets. Istock

In a country where the cultural conditioning has been to manage with financial shortage rather than creating surplus, it is no surprise that Indians are mentally wired to make money mistakes. We don’t involve children in the financial decision-making of the household, and, as a result, they are destined to learn from their own mistakes. Of course, many either don’t learn or do so when it is too late to rectify those mistakes. Money management of an average Indian is very poor and financial illiteracy is rampant even among those who are earning well.

The very subject of personal finance is at a nascent stage in India. Traditionally, Indians are not known to discuss money management as openly as in the other globally matured economies. Indians don’t easily rely on personal finance advisers either, and there are many reasons behind it. It could be lack of awareness, the cost involved, lack of trust and other cultural reasons. But then, the concept ranks at the top of the list of the most searched items on Google. This clearly indicates a disconnect as most of the personal finance advice on Internet is sourced from global markets.

It is true that the subject of personal finance is very much evolved in matured global markets, but those suggested theories are not in sync with the Indian reality. India is a different market altogether and needs its own set of personal finance theories that are in conformation with the Indian economy and society at large. Most of the globally well-accepted personal finance advice is relevant for their own economies and following that advice could land an average Indian into a financial mess.

Let’s examine the most widely accepted global concepts of personal finance and see whether or not these are relevant to Indians...

Net worth in house: Globally, the personal advice is that the share of house in your net worth should not be more than 30 per cent. Is this possible in India? Here, no decent house in any of the top tier cities is available below Rs 1 crore. Now, to have only 30 per cent share of your net worth in your primary house or residence simply means you can buy a house only if you have a net worth of Rs 3 crore. How many Indians would qualify for this purchase power? Hardly the top 4 per cent, even with generational wealth, would qualify with this personal finance rule to own a house.

Housing loan as leverage: Housing loan is often referred to as leverage in matured economies. But then, in most of those countries, the rental returns are higher than the borrowing cost. So, if you can afford a downpayment of 15-20 per cent, then practically your tenant pays for your house. This is not relevant in India where the gap between home loan borrowing cost and rental return is no less than 500 basis points, or 5 per cent.

House price 5 years of gross income: A house is affordable only if it costs 5 years of your gross income. Ironically, the average cost of house in top tier cities of India is 11 years of gross income, with some cities touching up to 40 years. Finding a house worth 5 years of gross income is an impractical finance advice in India.

Net worth in stock market: How much share of your net worth should be invested in the stock market? Globally, personal advice is to use Rule 100, which means divide your age by hundred and put that much money into the stock market for lesser volatility. Simply put, it means a 40-year-old person should have 60 per cent of net worth in the stock market and a 60-year-old person should have 40 per cent. That, unfortunately, doesn’t hold true in a country like India where the stock market is not just subject to sentiment-driven volatility, but also scams and market manipulations.

Retirement corpus: Retirement corpus is advised by personal finance experts to be 25 times your annual expenses the day you are retiring. That again is not relevant for a country like India, where people generally retire, or are forced to retire, latest by 58 or 60 years. It is a prudent advice in those countries where people generally work up to 67 years, and are also backed by the government social security.

Retirement withdrawal rules: The 4 per cent withdrawal rule is a generic advice in western countries, where the returns are low and inflation is also low. In India, one needs to have a really large corpus to be able to survive with only 4 per cent withdrawal of interest or investment returns.

Emergency fund: An emergency fund is, no doubt, necessary in today’s uncertain job market. But the question is, how much? The personal finance advice that I find all around is 6 months of your salary or expenses.

That is relevant only in those economies where getting re-employed is easy. That is not necessarily relevant in a country like India where once losing a job, one can struggle for a year or two to get another job.

The Indian context

That brings the most relevant question to the table — what is the right-fit personal finance advice in the Indian context?

A stable asset allocation in the Indian context is to have a 40-40-20 approach — 40 per cent in property, 40 per cent in financial products, and 20 per cent in gold and other assets. More importantly, one should not aspire to buy a house before having a decent net worth. Home loan should be used as a leverage and not liability. It simply means borrow a home loan at 8 per cent for the amount that you already have and then use your money to earn a higher interest at 12-14 per cent.

If you don’t have net worth, don’t fall into the trap of a home loan that costs more than the property appreciation. Added to that is the uncertainty of financial emergency where the house as an asset class doesn’t have asset quality to bail you out.

Emergency fund should be no less than 2 years of your expenses, whether parked as fixed deposit or in gold that can be easily liquidated when needed. Your retirement corpus should also be subject to your age of retirement, but no less than 35 years of annual expense, keeping in mind the increase in average lifespan, India’s inflation and hyper-inflation of healthcare cost.

— The writer is CEO, Track2Realty

Financial self-evaluation

When banks or financial institutions ask for your KYC (Know Your Customer), you willingly give all your information. So, a third party has the access to your financial standing, but do you know your own financial standing? Most of the Indians are not financially literate to understand where they stand in terms of finances.

It’s time you know your own financial standing. KYF (Know Your Finances) is far more important than your KYC to the third parties. The question is, how to self-evaluate your own finances?

Here are a few critical issues to help you better understand your own finances:

— Know your expense ratio

— Know your net worth

— Know your leverage & liability

— Know your risk tolerance

— Know your financial goals

— Know your taxes

Why India needs own set of personal finance concepts

Ravi Sinha

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