How Much Money Do I Need in India to be Rich?

I have discussed the topic of getting rich with so many people that I cannot even remember the number. But, I never got a precise and accurate answer to two questions. What does it mean to be rich? How much money do you need to be rich? Everyone has their own definition and their own criteria.

This article is about answering the question, how much money you need to be rich? But, there would be a lot missing if I do not address the question, what it means to be rich? For a family of 4, parents around 30-year-old and children up to 10-year-old, living in a Tier – 2 city, an annual income of more than 45 lakh will bring them in the category of being rich. But the income alone cannot determine whether a person is rich or not. A person or a family can be considered being rich if they are having a high net worth. A regular and safe source of income, that can ensure a lifestyle lacking any fear of safety, survival and unforeseeable emergencies. They should also have ample time to take part in recreational activities at their leisure and the freedom of taking part in the majority of legal activities without any financial constraint.

What does it mean to be rich?

The most common criteria people use to define being rich is income. Let us try and define being rich based on income, and figure out problems that this definition present. By figuring the solutions to these problems we might figure out a satisfactory definition.

Defining being rich based on income

When someone starts trying to define being rich the first image that comes to mind is of our boss’s boss, a person having a high income. So it seems that someone having a source of high income is rich, right? We can accept that concept but there are problems.

• How much income makes you a rich individual, in India only 24 lakh people declared income above Rs 10 lakh for F.Y. 2016-17, that’s just 0.2% but ask anyone living in India, Rs 10 lakh makes you well off but definitely not a rich person.
• How much are the expenses of the individual, because a person earning Rs 10 lakh a year but having an education loan, a housing loan and a big family with single earner is not even well off, let alone being rich.

Defining being rich based on net worth

Let’s start with defining ‘net worth’

Net Worth = Total assets (all that he/she owns and earn) – Total outstanding liabilities (all that he/she has to pay)

Using net worth, we can easily define the actual wealth of a person solving the second problem we had with income. Now we can easily state that a person having a high net worth is rich, right? We can accept that concept but there is a problem. What amount of net worth makes you rich, Rs 1 crore is the value of a small flat in New Delhi, so should it be Rs 10 crore?

Final definition

If we closely look at the life of people who are accepted as rich we will find something common

• Lack of fear of unforeseeable emergencies like medical emergencies, a sudden rise in the price of the day to day necessities, etc.
• An absence of stress regarding the survival and safety of themselves and their family.
• Having time to take part in recreational activities at their leisure.
• Having the freedom to do or not do any legal activity without any financial constraint.

So we can say that an income which results in substantial net worth. A lifestyle that fulfills all 4 conditions listed above. A person having both of these can be considered a rich individual.

How much money do I need to be rich?

After establishing the criteria for being considered rich, we can finally address our main query. For calculating the amount we are making the following assumptions.

• A family of 4, parents are around 30 years of age. Children are not more than 10 years of age with at least a 3-year gap.
• This family lives in a Tier – 2 city in India.
• They have bought a house after taking a loan of 60 lakh, and a car with a loan of 12 lakh.
• Housing loan is for 20 years at a 9% interest rate, and the car loan is for 10 years at a 9% interest rate.
• The rate of inflation is 4% for the future.
• Return on safe investment like bank deposit is 8%, and return on investment like a mutual fund is 12%.

The monthly expenses of this family:

1. EMIs of loans
   1. Housing Loan: Rs 54,000 per month
   2. Car Loan: Rs 16,000 per month
2. Groceries: Rs 15,000 per month
3. Utilities (Electricity, gas, etc): Rs 8,000 per month
4. Internet, Phone and Cable TV: Rs 2,000 per month
5. School and related expenses of kids: Rs 15,000 per month
6. Entertainment (movies, eating at restaurants, etc): Rs 10,000 per month
7. Petrol for Car (30 km/day * 30 days * Rs 75 per litre petrol / 15 km/lt average): Rs 4,500
8. Term life insurance of Rs 1 crore each for both parents: Rs 1,000 per month
9. Family health insurance of Rs 15 lakh: Rs 2,000 per month
10. Salary of house staff: Rs 15,000 per month

Total is: Rs 1,42,500 per month OR Rs 17,10,000 per year.

The annual expenses of this family:

1. Clothes and shoes: Rs 60,000 per year
2. Vacation: Rs 60,000 per year
3. Small Parties (birthdays, anniversaries, and special occasions): Rs 40,000 per years
4. Festivals (Sweets, gifts, crackers, house decoration, etc): Rs 50,000 per year
5. Gifts when invited on occasions like marriage: Rs 50,000 per year
6. Maintenance of fixed assets (house, car, etc.): Rs 1,00,000 per year

Total is: 3,60,000

These two can be considered their annual expenses: Rs 20,70,000 per year.

Investment required for future need:

This family will need large sums of cash for the higher studies and marriage of their children. Usually, people invest in safe avenues when investing for their children, like bank deposit and PPF.

Investment is also required for a retirement corpus. The investment for retirement corpus can be made in a little more risky avenues like a mutual fund.

Here, we should consider the future value of money. The value of money decreases every year by the rate of inflation. So, if we need Rs 1 lakh today, we will need more money for the same thing in the future.

Higher Education:

1. Rs 15 lakh after 10 year at 4% inflation become Rs 23 lakh: Monthly investment at 8% return is Rs 13,000
2. Rs 15 lakh after 13 years become Rs 26 lakh: Monthly investment at 8% return is Rs 9,000

Marriage:

1. Rs 30 lakh after 20 year become Rs 67 lakh: Monthly investment at 8% return is Rs 11,000
2. Rs 30 lakh after 23 years become Rs 75 lakh: Monthly investment at 8% return is Rs 9,500

Retirement Corpus:

Annual expenses of this family are Rs 20,70,000 per year. Out of this, we can remove the EMIs, education expenses of children, etc. As these will not be there after retirement. So annual expenses after retirement comes out to be Rs 8,96,000 rounding off result in Rs 9 lakh.

Now let us assume the parents take retirement at the age of 55. The life expectancy to be up to 80 years. So they will need a corpus for 25 years after 25 years.

Considering the inflation of 4% they require around Rs 6.5 crore after 25 years.

If the expected return is 12%, the monthly investment required is Rs 35,000

Total monthly investment for future goal is: Rs 77,5000 ( Rs 9,30,000 per year)

Final Income

So total annual income required = annual expenditure + investment for future goal = Rs 30,00,000 per year

To this income, we add three more things.

• 10% saving for emergency = Rs 3,00,000 per year
• 10% saving for developing passive income source = Rs 3,00,000 per year
• Income tax of around Rs 8,00,000

Finally, the total annual income required comes out to be Rs 44,00,000 rounding off to Rs 45 lakh annually (taking some misc expense into consideration).

Phew, haven’t done this much math since 2017. But it was interesting.

But, now two question arises:

• How this income makes one rich?
• Is this income enough?

I will answer these questions on the basis of the definition given in the second para and first sub-heading.

How this income makes one rich? This is a substantial regular income which is way more than their annual liability of Rs 8,40,000 for EMIs. This income is covering their basic needs, is enough for life and health insurance, and they are capable to invest for future needs. Thus ensuring a lifestyle lacking any fear of safety, survival and unforeseeable emergencies.

Is this income enough? This income covers the financial requirements and provides this family with a relaxed and stress-free lifestyle. But, what about the remaining factors.

• Having time to take part in recreational activities at their leisure.
• Having the freedom to do or not do any legal activity without any financial constraint.

How are they earning this money? What if their jobs leave them with no time? What if their job put restrictions on them, thus not allowing them to take part in certain activities? The answer to these questions forms the last link. They should earn this income in such a way that they have time and freedom to enjoy their life in a way they want.

What to do after I become rich?

First of all congratulations, you are earning enough income in a way that gives you time and freedom. Can you tell me your story, so I can learn from you too?

Okay, what will you do once you become rich, or what should you do? First and foremost, you should give back to society. Humans are a social animal and no matter how rich you become you need to be part of this society. Finance some poor kid’s education, donate to a charity, whatever you feel like doing and whatever you can afford. The people who say money doesn’t bring happiness never learned this lesson. The return you will get from helping the needy will be way more than the return of any stock.

Secondly, ensure that you remain rich even in emergencies. The level of emergencies will keep on increasing as you cover one emergency.

• Make sure that you will continue being rich even if a recession hits.
• Once you have done that, make sure that you will continue being rich even in case of an economic collapse.
• Once you have done that, make sure that you will continue being rich even in a case where you have to settle in a different country.
• Once you have done that, make sure that your future generation will remain rich.

With each progress increase the amount you give back to society.

TIP: One thing that every rich person did

PASSIVE INCOME SOURCE

A passive income source is one where you invest time and energy in the initial stages. After the initial stage, once you have developed a passive income source, you keep receiving income without even looking at it. For example, you write a book, it may take you 1 or 2 years to write the book and get it to publish. But, once published it will keep on generating income even while you sleep. Some example of passive incomes are,

• E-book
• Blogs
• Online courses
• Stock investment
• Rent from properties

You should invest your early years in developing multiple sources of passive income. These will give you income, security, time and freedom. You will even have the option of retiring early if you want to. I have never come across a rich individual who doesn’t have multiple passive income sources.

PS: This article is entirely based on my personal experience and data I gathered from families of friends and relatives. The calculation is done, the estimates made and the views presented are completely based on my personal understanding of personal finance. You may find some things entirely wrong, in such cases, I request you to freely express your opinion in the comments. You might figure out a mistake I have been overlooking and thus will teach me an important lesson. Thanks in advance.