Among the many third-world problems, one that tops the charts for the urban population is the pain of intra-city travelling. Buses and local trains bursting at the seams, auto rickshaw drivers demanding exorbitant fares and let’s not even talk about the unending traffic jams. For the smart ones who use Travel Credit Cards, planning a vacation is easier than actually commuting within the city.
Most city dwellers have a car, but not everyone prefers inching through traffic jams on a daily basis. This means that a sizeable portion of the population depends on the (in)efficiency of the public transportation system to get to their destinations. And because public transportation doesn’t always offer great connectivity, many of us opt for cab services as the most convenient way to get to where we want.
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Additional Reading: Car Loan Handbook: All Questions Answered
The Taxi Revolution
Although public taxi services were pretty common in most metros, they came with their own set of drawbacks. For starters, you couldn’t book them in advance and had to get on the streets to hail one. So, when companies like Uber and Ola introduced a more effective system of booking a cab from your smartphone, it became an instant hit.
Private transportation companies have since provided job opportunities to plenty, and have done a good job marketing their brands. And just like that, cities are now buzzing with cabs and cab drivers.
But, how profitable is this profession? How much money does a cab driver make on average? There’s no denying that many of us have wondered about this at some point or another.
Well, we happened to speak to a cab driver who recently switched from his previous profession to driving a cab. After a little chat with him, we learnt a thing or two about how he manages his finances.
How It All Started
For Mr. Shiva Prasad* (32), driving a cab is a stop-gap arrangement.
“I used to run a vegetable shop, which did very well. But, due to the road widening in my area, I had to give it up. It was hard because I had to feed several mouths and not having a monthly income wasn’t an option,” he said.
Luckily, for Shiva Prasad, he had enough time to come up with a plan that could help him support his family. All he had to do was get down to it.
Additional Reading: How To Build An Emergency Fund
Making The Shift
Not having a vegetable shop anymore meant that Prasad had to get out of his comfort zone. Although he did have a car which he had rented out to a driver, Prasad decided to take matters into his own hands and become a cab driver himself.
Making the shift wasn’t entirely an easy one for Prasad. With two school-going kids and his ageing parents dependent on him, Prasad not only needed a contingency plan, but also a steady income to take care of all his responsibilities.
The best available option for Prasad was to take up driving a cab. Prasad wasn’t one to hesitate. Since he already had a car and knew how to drive, he put two and two together.
The result?
Prasad sold his old car and used the proceeds to make the down payment for his brand new Mahindra Verito through a Car Loan. He paid Rs. 1,40,000 in cash as a down payment and converted the rest into monthly EMIs of Rs. 15,605. So far, he has already repaid sixteen EMIs and hopes to complete the remaining thirty-two soon enough.
BB Lesson# 1: Nothing Is Permanent. Build An Emergency Fund
You may have the best paying job today, but there’s no guarantee that you’ll have it tomorrow or even a month later. Hence, it’s important to have an emergency fund ready.
Start small. Even if you are able to put aside Rs. 5,000 each month, you’d save Rs. 60,000 by the end of a year. But, if you put aside the same sum in a Savings Bank Account, you could earn 4-6% interest on your savings. Sounds good?
Additional Reading: 10 Benefits Of Investing In Mutual Funds
Getting Down To Business
When asked about how he manages his expenses, since he has to pay EMIs every month, Prasad enthusiastically said, “I make about Rs. 60,000 (monthly) as a cab driver, which is almost as much as any MNC employee would make (on an average). I am able to save Rs. 15,000 per month after all deductions like EMI, fuel expenses and also household expenses.”
Considering Prasad saves Rs. 15,000 each month, by the end of the year he will easily have Rs. 1,80,000 in savings, which is a decent amount, especially if he decides to get back to his vegetable business.
BB Lesson #2: Optimise Your Resources/Money
In short, optimising your resources means to start investing your available funds. Invest a part of your savings in financial products which can be liquidated easily if need be. Getting a Fixed Deposit Account is a great option for people who don’t want a long lock-in period that typically comes with Mutual Fund investments.
Additional Reading: The 50-20-30 Financial Rule Of Thumb
What’s Next?
But, what does Shiva Prasad really do with those savings?
“It’s all collected in cash. I’m saving to buy a new vegetable shop. Once I finish paying off the Car Loan, I will convert my yellow number plate to a white board car. God willing, by the end of it, I shall have my vegetable shop and a car too,” he said.
BB Lesson#3: Save 30% Of Your Salary
Saving your money in cash isn’t always a great idea. For starters, you must be careful of theft. Secondly, a stash of cash isn’t going to grow on its own. So, investing that money into something that gives returns is a good bet.
Although Rs. 15,000 may not exactly be 30% of Shiva Prasad’s monthly income, it roughly makes for about 25% of the entire sum he earns. The 50-20-30 financial rule of thumb states that one can use 50% of their earnings for recurring expenses or living expenses that include rent, food, utility bills etc. Then comes the 20% that you’re allowed to spend on luxuries. This can include your wants or indulgences. The last 30% should be saved.
Additional Reading: Investments For Young Professionals
BB Lesson#4: Make Wise Investments
What you must remember is to choose an investment that suits your needs and then go ahead with it. Choose investments that make financial sense to you rather than just going with what’s trending.
Still confused about investing? Learn more about investing at BankBazaar.
*Names have been changed to protect identity.