The financial checklist for a returning NRI
Posted by: Uma Shashikant on Dec 18, 2018, 09.53 AM IST
By Uma Shashikant
My non-resident Indian (NRI) friends want to return to India after working for 20 years in the Middle East. They are enamoured by the good life their friends and relatives seem to be living in India. They have children who will soon go to college and they feel moving to India will be the right thing to do. How will the move affect their finances? What should they look out for?
First, the knowledge and skills acquired from working in a different country may not be directly relevant and sought after in India. The wife quit her job when they moved abroad and she could find it tough to return to work, despite her qualifications. The first task to do would be to apply for jobs, speak to prospective employers and secure the household’s income before moving.
They feel coming to India and using the time here to evaluate opportunities might be better. There are two disadvantages in taking that route. Seeking a new job after quitting the existing job will diminish one’s bargaining power. Lack of a regular income can place the household under needless stress and lead to hasty or bad decisions.
Second, they hope to use the money they have saved to begin a new business in India. The husband has worked for years in a bank and believes that starting a micro finance business that lends to smaller groups might be a good idea. He wants to team up with a few friends to set this up and believes the environment is right for entrepreneurship.
Businesses such as financing require relationship building with both lenders and borrowers. Local entrepreneurs enjoy a distinct advantage here as they have an existing network and are familiar in their communities. A new NRI who walks into the business primarily contributes money, placing himself in a position of high stakes and low involvement and contribution.
In order to learn the ropes, it might be worthwhile investing in such a business as an angel investor, while holding another job. It will also determine if the skills of the NRI are suitable for the business. Also, the constraints and challenges in the business can be appreciated better without staking too much too soon. A wealthy NRI must remember that bringing capital into a business is essential but not sufficient condition for successful entrepreneurship.
Third, they draw their confidence from their accumulated corpus, the two flats and one large house they own in their home town, and the large stash of gold they have bought over the years. The presence of assets makes one feel wealthy, but the real worth of the assets during times like these when one transitions from one job to another, is the amount of income they can generate.
Property does not generate a high rental yield, and if the large house is being occupied by the family, it will earn no rent. Does the rental income cover the expenses of the household and leave a surplus? Is it enough to provide a buffer while the family is trying to rejig its base? Will there be enough money for the children’s school and other activities?
Is the family willing to rework the assets so that they generate a sufficient income? Gold earns no income and is wasteful under the current circumstances of the family. Are they willing to sell it and invest the money so that it earns an income? The investment corpus should also be protected for future goals including the higher education of the children and retirement of the earning member.
It is easy to feel wealthy when one considers the assets and the high income the man of the house is currently earning. The move has to be evaluated for what it does to the critical components of the family’s wealth. It disturbs the current steady income; it places a demand on the investment corpus; it requires large assets to perform better or be sold; and it places at risk long-term goals.
That is why decisions to move jobs or return home are tough. They have a severe destabilising effect on personal finances. They become even riskier if the decisions cannot be reversed or if the switch involves getting into unchartered territory. Going from employee to entrepreneur is not easy.
A gradual and planned transition will shield the household from shocks and provide a buffer to deal with the challenges of the move. The spouse, who plans to work in India, can apply for a job first and secure an income for the family before they all move. They can decide to rework assets so that a portion of the investment corpus that covers an entire year of expenses is available to use. The household can then work towards stabilising all the components of its move while agreeing to utilise this money to keep the basics in place and reduce stress.
Building a strong financial position for a household requires holding enough assets to last until the major financial goals are met. If nothing materialises, and if the prospect is one of early retirement, is there enough money and assets for the future?
Also important are the social and community aspects. Many returning NRIs fall into the trap of putting up the appearance of wealth and plenty; or they fall into the trap of lending to friends and relatives who believe the NRIs have made enough money; or they make wrong decisions with respect to where they will live and work.
When living far away in a strange country and in a different environment, home evokes nostalgia and warmth. However, the reality after one returns might be different. Ever willing friends and relatives of the past may not be too willing to be supportive. Our friends should make their decisions clinically, keeping their focus on securing their finances—the income, the capital, the accumulated wealth and their long term goals.
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