Make Finance Personal | Expert Speak

Here is my story.

At the age of 23, I took up my first job at Infosys. It paid me 14k/month. I was able to save 3-4k every month and put that in a recurring deposit.

Till that day, my mother provided for my education and basic necessities. I did not have to fend for myself – The concept of working at a McDonalds while you are studying was not prevalent in India – or at least in my situation. I never took up any internship / part-time job while I was pursuing my education.

In 2008, after my MBA, my income went up to $75k/annum. Again, I wasn't able to save much as I had to repay my education loan and spent much of my disposable income on travel.

In 2010, I came back to India. At Reprise Media, I was at a decent salary that allowed me to save enough (in Fixed Deposits).

In 2011, I took a home loan, making a down payment of 20 lacs, basically all my savings which took 7 years for me to repay.

In 2018, at the age of 36, I was finally debt-free which then allowed me to start investing actively and planning my finances.

They say- It's never too late to start. When it comes to financial planning, I say- It's never too early.

In fact, I would urge one to start early because the best time to start building your wealth was yesterday. The second-best time is now.

Has this inspired you enough to get started? Keep reading to know how.

My personal finance tenets

If you read my story, by now you know that I have been intrigued by the concept of money. Off late, I have realized that money is how you transform time and wealth. Building wealth is much more important.

Here are some of my personal finance / wealth building tenets that I always follow:

Always have multiple sources of income

For the past 10 years, I have created a life where I am earning from multiple sources. As of October 2020, my various sources of income include

• Remuneration paid as a Managing Partner at Briefkase (I am a 50% equity holder)

• Salary paid as a Chief Revenue Officer at Koppr (I own minority equity here)

• Honorarium paid by different institutes where I teach – IIT Bombay, IIM Sirmaur, Great Lakes Chennai, Digital Vidya

• Interest income earned on Fixed Deposits

• Dividends / capital gains from Mutual Fund investments (I play long-term and hence rarely redeem MF units)

• Rental income from one apartment

Today, it’s much easier to generate income from multiple sources.  Whether itsFiverr, being an Instagram influencer or selling courses online, the internet has leveled the playing field and broadened avenues of earning. All you need to do is think. And start diversifying.

Don’t spend more than what you earn

Income should always be greater than expenses. As a software engineer, I earned INR 14k as a monthly salary which covered all my expenses and left some for savings. Today I earn much more and yet manage to curtail monthly expenses to 25% of my income.

For the past 16 years, I have kept a close tab on my monthly expenses. I maintain an annual budget sheet and revisit it every month. Numbers don’t lie. They provide you a reality check.

If you make monthly budgeting a habit, you should be able to cut down on your expenses and increase your savings rate.

Now, how do you keep your expenses in check? This is what I do before spending on anything. Ask yourself

• Do you really need to buy this? Is the purchase necessary?

• Can the purchase be delayed? Does it seem impulsive?

• Is there a cheaper alternative with low switching cost?

And the most important question I ask myself is

• What’s the long-term impact of this expense / purchase? For example, I never hesitate twice to buy books for my kids as I see it as an investment, but I will be careful while choosing toys as I want to get them the ones that provide some learning or are valuable as opposed to just being a toy.

Earnings > Income. Stay cash flow positive and you shall flourish.

Here’s a free monthly budgeting templateI have created for you!

Invest 30% of your monthly income

Today, I invest roughly 25% of my income in Mutual funds & equity. This was not the case earlier as I was very conservative with my investments and resorted to Fixed Deposits at banks- A crime for those who don’t understand inflation.

Now, I am driven to build a diversified portfolio with mutual funds, equities, liquid funds, bonds, and alternative investment instruments (structured products). The power of compounding will kick in for these liquid investments and lead to wealth creation.

Never take a loan on a depreciating asset

I don’t own a vehicle. If I ever intend to buy one, I will collect enough funds to make a down payment. A car / bike is a depreciating asset. Right from the day you purchase it, its resale value decreases. I’d rather invest in something that appreciates over time. Some of my appreciating investments include real estate (two apartments in Thane) and equities / stocks.

Track your investments with a target in mind

I religiously track my portfolio performance every month while looking for better investment opportunities constantly. 

As I am getting wiser with money, I am looking at switching certain percentages of my safe investments (fixed deposits) to equity markets. 

At the age of 40, my goal is to have 50 lacs invested in equities / mutual funds (I am at 50% of my goal as of December 2020).

Plan your finances early in life

It is very important to plan your finances early. In hindsight, I should have hired a financial planner early in my life, but I failed to pay the attention needed to my finances. I used to just save in fixed deposits.

In early 2020, I signed up with a financial planner and planned all my goals in advance. A full financial plan would cover Cash Management, Risk Management, Retirement Planning, Investment Planning and Estate and Tax Planning.

I would definitely recommend signing up with a certified financial planner to ensure a smooth road on your way to financial freedom.

You may want to download & read Koppr’s Beginner’s guide to Financial Planning

Teach your kids & others about money:

The entire world runs on money, but money and personal finance are two topics that are not taught in school- This is appalling!

If you are a parent or planning to start a family, I would highly recommend inculcating good financial habits in your kids.  I don’t want to sound preachy and dish out parenting advice, but I sincerely wish that my school teachers or my own parents taught me the importance of money via a structured course / learning as opposed to letting life take its course and teach me from experience.

Wish you the best & happy financial planning!