[TurboTorque]

I would like to share my learnings and experiences in personal finance and how I am managing my finances with fellow BHPians.

Disclaimer: As they say, personal finance is personal to each individual and things that are working for me may not work for others. I am not an expert and still a beginner and constantly improving my knowledge, awareness, and strategy.

Background:
I am in my mid 30s, started my career in 2012, blessed with two daughters. My wife and I both work in IT.

The initial few years into my job, I did not seriously think about saving and investing, all I was planning and aiming to buy my first bike and car.

• When I got an internship in 2011 with a stipend of 15k, I bought my first bike, a Hero Honda Karizma, with an EMI of 8k for 9 months. The EMI was almost 50% of my stipend and managed the remaining 7k for my stay and food.
• After a year into my regular job, I bought my first car, a Hyundai 1.4 CDRi Sportz MT, for close to 9 lakhs on-road including accessories, with an EMI of 15k. This EMI was about a 25% of my salary.

When I think about financial planning, I think that buying my first bike was okay, I wonder if buying the car early in my career was the right choice. If I had invested that money in two plots of site in my hometown, it would be worth almost 1 crore today. There was no real need than a want to fulfil my childhood dream. If I keep my finances aside, I enjoyed owning this car, doing a lot of road trips, and having unforgettable memories with friends and family. Anyway, whatever has happened has happened. My unsolicited advice to youngsters who just started their careers is not to buy big-ticket items early in their career like I did.

Around 2014, 1 year into ownership of my car, started feeling the pinch of paying EMI or car related expenses, few of colleagues influenced on investment idea. And, my new manager was always speaking about investment with us and he started 45 mins session on every alternate Friday to talk about investment and any off-topics. With my new manager and few colleagues influence, I started seriously thinking about investment. I opened Demat, Mutual Fund, and PPF account.

I started saving more and investing in direct stocks and mutual funds. I got a hands-on and overall understanding of investment. Fast forward to 2016, I got married and most of my investments were spent on marriage expenses plus a personal loan. I spent around 15 lakhs on my marriage other than my wife's side expenses. This is another mistake that I realised later. My other unsolicited advice to youngsters is do not overspend on marriage keep it simple. Because:

• Even after spending so much money, you can’t make everyone happy.
• I bought more than a lakh worth of suits that I never used even once after marriage.
• The clothes that I bought were not fitting after a few months.
• We never opened the expensive album except for the initial few years. I know this is a memory but you don’t get time to see it as we are busy with our day-to-day work, kids, and other things.

After a few months into the marriage, I realised that I was investing in an ad-hoc way. The intent for saving and investment was there but there was no proper planning, purpose, goals, and proper way of handling expenses.

I started reading more about personal finance, investment and managing expenses. And, I realised personal finance is more than just investing in stocks and mutual funds. I hugely benefited from Freefincal and the 'Asan Ideas for Wealth' Facebook group for my investment journey. These two resources have helped to understand overall personal finance and shaped my investment journey. I have huge respect and regard for them for creating such a platform of wealth of information on investment without any vested interest. When I was in doubt/dual-minded in making big financial decisions, I spoke with the admin of the 'Adan Ideas of Wealth' Facebook group in two different instances over the phone. Both times, he helped me understand to make appropriate decisions. He is in no way related to me, he is in another part of the country, but he still gave his time and support. He is such a gentleman. He does this to every member of the group.

As I mentioned earlier that personal finances is more than just investing in stocks and mutual funds. Based on my understanding, it has following different sections:

1. Handling expenses
2. Emergency Fund
3. Health and Term Insurance
4. Identify the future goals and invest
5. Sharing investment details with family

[TurboTorque]

Handling expenses:
Most of my family expenses includes rent, food, school fees, insurance payments, trip expenses, vehicle fuel and maintenance, and misc. expenses like phone recharge, TV, OTT, and clothes.

In the above expenses, there are two categories 1. Monthly expenses and 2. Annual expenses.

Based on our spending, I budgeted for each expenses monthly-wise and tagged each expenses to a saving bank account. So, when my wife and I receive our salaries, we transfer all the monthly wise expenses to the respective SB accounts.

For example: If my daughter’s annual school fees is 1 lakhs, monthly expense would come to 8333 Rs. So, we transfer every month 8333 Rs to respective saving account.

In this way, we do not have to worry about arranging money when actual expenses come. It helps us to budget and avoid overspending on particular expenses. I had opened 6 multiple SB accounts for some reason over the years and have not closed them instead I used them for my benefit.

SB1: School Fee; Since we transfer every month to this account, all my kid's expenses would be spent from this account.

SB2: Yearly expenses like Insurance payment and other misc. expenses.

SB3: Trip expenses; We transfer some amount to this account each month. When we plan for the trip, we budget based on the money available in this account. If it is not sufficient, we will postpone it. If it is 10 to 20% less, we will take it from emergency or buffer money.

SB4: Vehicle fuel and maintenance.

SB5: Investment and registered with brokerage account.

SB6: Rent, home expenses, self-expenses, and some buffer amount.

We pay most of our expenses via credit card and when we pay the credit card bill we get the money from the respective account. The problem with this approach is that we have to make multiple transfers every month and again do the RD for certain expenses in their respective account. We could have managed all of this with a single unified account. I started this a few years ago and it has been working for us. So, I continue to use the same method. I may change to a unified account in the future.

Emergency Fund:
This is one of the important funds that most people ignore. Before we make any investment first thing one needs to allocate funds for this, especially for the salaried class people.

• With the dynamics of the IT industry, jobs are not stable and no one is irreplaceable even if you are good, they may ask you to leave at any time.
• Any emergency can come. It does not inform you before it comes.
• After a certain age, you can’t ask for money from your friends and family since everyone will have their own problems and commitments.

So, we have kept 1 year of our expenses in a Sweep-in FD account and we have two credit cards with a 15 lakhs credit limit together.

Some people divide this fund and keep some percentage in SB, liquid MFs, arbitrage funds, and debt funds. Since one of the important point of Emergency funds is how fast one can liquidate the money in the case of emergency, we are happy with Sweep-in FD.

[TurboTorque]

Health and Term Insurance:

Health Insurance: Most IT people will have corporate health insurance from their employer for around 4 to 6 lakhs coverage. I learnt after reading online and hearing experience from the close circle that corporate insurance may not be enough for the following main reasons:

• With the dynamics of the IT industry, you may lose your job anytime and once you are out of the job, you do not have health insurance coverage. I heard some real stories that people lost their jobs and before getting another job, they met with an accident and paid the hospital expenses from their savings/investment.
• People say you have to buy health insurance when you are healthy otherwise insurance companies may not provide it for you. So, when you leave your job for good, if you do not have any insurance and are not healthy, you may not get the insurance.
• 4 to 6 lakhs coverage may not be enough. According to a recent report, India’s inflation rate for medical expenses is 14% (https://www.business-standard.com/fi...1201091_1.html) and advancements in technology, and hospital expenses are bound to increase. During Covid time, one of my friends was infected with Covid and admitted to Manipal Hospital in Bengaluru. He used to work for Manipal Hospital in the technical department. His health got complicated and he was in ICU and underwent ECMO treatment and finally survived. He is doing good now. But, the hospital expenses were around 65 lakhs and he had 4 lakhs insurance coverage. Somehow his family managed to pay the complete amount and they sold one of their properties later.

I have a family floater of ~1 CR coverage (15 lakhs base and 90 lakhs super top-up policy) for my wife, two daughters, and me. And, I have a separate policy for my mother (5 lakhs base and 5 lakhs super top-up policy). My father could not get insurance when I tried a few years back because he had an angioplasty and a lung problem. This is one of the reasons you need to buy health insurance when you are healthy. As of today, he is covered in my corporate insurance.

Term Insurance:
Most people make mistake of mixing life insurance and investment, and ended up buying LIC life insurance and ULIP. The idea is to buy the term insurance with enough coverage which would provide financial security for the family when you are not there. The premium would be much cheaper compare to typical LIC life insurance policy.

The expert says that one should buy 17 to 20 times of his/her yearly income plus any current liabilities as sum assured.

My wife and I have sufficient term insurance coverage till 60 years of our age.

[TurboTorque]

Identify the future goals and invest:

Most people will have following future goals:

1. Child education and marriage.
2. Retirement.
3. House purchase.
4. Car purchase.
5. Foreign trip.

I had 3 major goals when I was planning few years back 1) Child education and marriage 2) Retirement 3) House purchase.

After identifying my goals, followed the following steps to plan for the investment:

1. Find the time horizon for the goal. For example: My daughter is 5 years old now, and we will need money for her graduation in 13 years from today.
2. Identify today’s money for the goal.
3. Check the inflation rate for the goal.
4. Calculate the future value/target corpus using inflation and time horizon.
5. Based on your risk appetite, select the right investment products and create the asset allocation among them.
6. Based on the selected investment products and their asset allocation, identify the average return and calculate how much you need to invest monthly to reach the target corpus.
7. As a result, you know the time horizon, target corpus, investment products, asset allocation, and monthly investment amount. The next step is to start the investment, review it yearly, and take the appropriate action if there is any deviation from the original plan.

I followed following key points while calculating target corpus and selecting investment products:

1. Be conservative while calculating the target corpus.
2. Select a conservative average return while calculating the monthly investment amount required for each goal based on its time horizon. For example, 4% for a 0-5 year goals, 5-6% for a 3-5 year goals, 6-8% for 5-10 year goals and 8-10% for 10+ year goals.
3. Reaching the target corpus is the ultimate goal and how we reach there may not be as important. Few people can reach the target corpus by just investing in FD or real-estate. So, based on your risk appetite, select the appropriate products and keep it simple. Focus more on building your skills, working hard, making more money using your skills, because people can easily reach the target corpus through human capital than through the returns on actual investments.

How to calculate the monthly investment amount required once we know the target corpus and time horizon?

We can easily calculate this in Excel or Google Sheets using the simple FV formula and the Goal Seek feature.

Future Value (FV) formula: FV(rate, nper, pmt, [pv], [type])

• rate: The interest rate for each period.
• nper: The number of periods.
• pmt: The payment made each period.
• pv: The present value or initial investment.
• type: The timing of payments.

Goal Seek feature: https://support.google.com/docs/answer/9506732?hl=en

For example, lets use child education as a goal.

1. For example, my daughter is currently 6 year old, and she will be 18 years old in her first year of graduation. So, 12 years left to achieve this goal.
2. Finding the target corpus for the child graduation education may not be accurate because we do not know what they will study and it’s all depends on their interest. But, we will have to pick based on our best educated guess. For example, you need anywhere around 15 to 30 lakhs for any average Engineering degree or Medicine degree today’s money (Engineering/Medicine degree only for the example). So, let’s consider 30 lakhs today’s money for the goal.
3. Inflation rate for education is around 8 to 10%. Let’s consider 8% for the calculation.
4. Future value based on today’s money, inflation and time horizon: 75,54,510 Rs (Reference tool: https://www.advisorkhoj.com/tools-an...ion-calculator).
5. Assets: Equity(60%) and Debt (40%).
6. Expected average return from Equity (post tax): 10% and Debt (post tax): 5%.
7. Current investment amount is 0 and Annual Increase in total monthly investment is 5%.

Let’s add the data to the Google Sheet as shown in the image below:


The data in columns A to I and rows 17 to 29 were manually entered.

The following formulas are used:

• Add this formula '=J17*12' in Column K, Row 17, and drag it down to the rest of the rows in the Column K. This will calculate the yearly investment required.
• Add this formula 'FV(H17/12,1*12,J17,B9)*-1' in Column L, Row 17, and drag it down to the rest of the rows in the Column L. This will calculate the future value at the end of each year.
• Add this formula '=J17*D17' in Column M, Row 17, and drag it down to the rest of the rows in the Column M. This will calculate the monthly investment required in equity based on the asset allocation.
• Add this formula '=J17*E17' in Column N, Row 17, and drag it down to the rest of the rows in the Column N. This will calculate the monthly investment required in Debt based on the asset allocation.

That’s the end of the formulas.

Next, use the 'Goal Seek' feature in Google Sheets to find the monthly investment amount. Go to Extensions -> Goal Seek -> Open.


You will see the Goal Seek window on the right side of Google Sheets.


There are 4 steps in Goal Seek.

1. Set Cell: This is the cell where we want the final target corpus amount to be filled. Select the cell (Column L, Row 29), then click 'Capture selected cell' (the square box).
   
   
2. To Value: Enter target corpus: 7554510
   
   
3. By Changing Cell: This is the cell where we want the monthly investment amount to be filled. Select the cell (Column J, Row 17), then click 'Capture selected cell' (the square box).
   
   
4. 4. Click 'Solve' button. It will calculate and fill in the values in all the cells.

After the calculation, as you see in below image, monthly investment amount required is 23,198.84 Rs.

https://www.youtube.com/watch?v=JTmZYyVgrTY

Link to the sheet: https://docs.google.com/spreadsheets...it?usp=sharing

This is how we can calculate the monthly investment amount required to reach the target corpus based on the time horizon.

We have a lot of variables and assumptions (like current amount for a goal, inflation, and average yearly return on investments) in our calculation, so these numbers may not be final or accurate, as we can’t predict the future. This calculation is part of the investment plan and we can keep these monthly or yearly investment numbers in mind while making monthly investment toward the goal. These numbers guide our planning and decision making and helping us invest more effectively toward our goal.

In a similar way, I have calculated for all my goals and am investing monthly towards the same.

[TurboTorque]

Sharing investment details with family:

Based on the below article, unclaimed deposits with scheduled banks crossed ₹42,000 crore as of March 2023.

https://www.thehindubusinessline.com...le68203346.ece

It is very important to share all the details of your investment with your family. After all the hard work, if your family is not aware and unable to use the money then it is of no use. I have created google sheet by cloning the free gift from Jagoinvestor to all the investors and added all my details. I shared it with my family and few trusted friends.

Link to free google sheet from Jagoinvestor: https://bit.ly/blackbox-jagoinvestor (You can copy it into your google drive and use it)

Thank you for reading my story. I believe that most people on this forum might already know the things I’ve written above and may be managing their finances better than I am. I attempted to share my learnings and experiences that might help youngsters and those early in their careers. Please let me know if there are any mistakes or issues with my approach.

[Aditya]

Thread moved out from the Assembly Line. Thanks for sharing!

[deep_bang]

Great post. I have a very similar setup although the tools used are different. A few points which may differ or add more to your post:
1. My returns expectation are simplified to Debt (7%) and Equity (12%) as opposed to your way of calculating by timeframe. My logic is, every goal should have a fixed Debt to Equity ratio. For example my vacation portfolio is a 100% equity where in if things dont work great I am fine to forego my vacation. However my child's education fund has a larger Debt percentage. Also, as my goal approaches to < 3 years I move it towards 100% Debt. Now in my case Debt generally means any of Debt funds/PPF/FDs or any other safe investment mode. This gives me the flexibility to choose any mode that's reasonably safe.

2. The most important part is to also monitor the actual versus projected. This is important because if there are any fundamental mistakes or events that occur that change the whole structure then you need to make corrections appropriately. For example, when covid happened after some considerations l increased my Equity percentage quite a bit to take advantage of the potential gain (this is a risk that one has to take carefully).

For this I have a projected value month wise for each goal and actual value comparison (color coded) so that I can quickly check which goals are ahead and which ones are behind the projected values.

My point is simply to ensure that you look at the actuals vs projections every few months if not earlier.

[Axe77]

Thank you for putting together such a fantastic thread. Detailed and yet simple to grasp.

The advise on not merging Term insurance and ULIP is really important. Equally important is ensuring your loved ones have information about your investments.

It was also interesting to read how you’ve sub bucketed various savings goals and created debt : equity risk allocation based on the nature of the goal. Not something I’ve considered doing but an interesting approach (vacations vs education for instance with difference risk profile). I’ve just taken an overall corpus, overall risk appetite and invested accordingly.

Once again, a fantastic discussion kick started and I’m sure many members will add invaluable perspective of their own too.

[Rajjay]

Very crisp and useful thread. Thanks for sharing such a fantastic information

[Bombastic]

A fantastic write-up on this very important topic I must say. Read every word of it. I wish someone had explained this to me in such detail when I was just starting out, as I have a very similar trajectory too. This post will definitely help a lot of youngsters out there, and maybe a few oldies too

[100Kmphormore]

Very informative thread, and I concur with most of your thoughts. I started working in 2018 and only made it to the big numbers in 2022 for a few months before I started my Masters, but I too had some experience of investing, thanks to my fund manager (read father ). I gave him the amount I could spare after my expenses bundled with home expenses and discovered I had made upto 40% in that one year (2021-22). The only mistake I made with my investing was putting the funds into ELSS with a 3 year lockin, but the returns upto recently were at 73%. I prefer mid risk mutual fund SIPs for those in the beginning of their career, never land/stocks etc which have higher risk appetite and also high EMIs.

Dont be too hard on yourself during your spending, especially in your initial days. Loved how you bought your motorcycle and the car. The only reason I did not buy a car was because I turned a motorcycle guy, and secondly, realized I could not after 15 minutes of planning (all expenses for next one year), and do not regret one bit of buying my dream motorcycle in 2022. The thrill, the energy, the excitement is surely during your early to late 20s, after which responsibilities take over. Always remember how much you can spend, make a plan at the year beginning and stick to it throughut the year.

[gischethans]

To the point writeup, @TurboTorque. I owe a bulk of my learnings to the AIFW (Asan Ideas for Wealth) Facebook group and Freefincal. I am sure you would have come across JagoInvestor as well.

A key learning for me was not to buy endowment or ULIP policies which I never did. Apart from that my investment strategy has been to

1. Direct stocks
2. SIPs in multiple mutual funds. Started with a Hybrid fund but is now into index funds and PPFAS DAAF.
3. SSY for daughter
4. Index funds and Gilt to match 1.5L per year total instead of PPF for son

Coming to mistakes, paused investments for 3-4 months during 2020 - April - July or so since the future looked very uncertain. While I had emergency funds in place, who knew if job would be impacted.

[Fuldagap]

Originally Posted by 100Kmphormore

The only mistake I made with my investing was putting the funds into ELSS with a 3 year lockin, but the returns upto recently were at 73%.

73% is insanely impressive number.

[TheCamShaft]

The approach you have taken on your own is what Fee-Only Financial Planners would do. Awesome clarity of thought and kicking things off rightly! Kudos to the way you have explained things up. The top-up to Health Insurance policies is something I've been contemplating but never executed as such yet. But your post reminded me that I need to do this immediately as the age will never wait.

There is a pleasure in investing once the habit kicks in. I want my kids to realize the value of investments early enough in their lives - whenever their piggy banks get a decent amount, I made it a habit to invest that into a multi-asset fund, they were reluctant at first, but as I sat with them once in few months to show how their money has grown by x% , and contrast that with zero appreciation if it had been lying idle in their piggy banks, their eyes and senses lit up. I hope they inculcate those habits and carry those senses throughout their life as they age.

My thought process is to get them their PAN cards as soon as they hit their legal age, and make them start their investments by self as soon as that happens. The seed amount would be from what had grown out of their piggy bank investments in MF as that's their money. Let that inspire them with what proper investments can do. Shall guide them with those initial nudges and let the practice settle in their lives!

[Aviator_guy]

Originally Posted by TurboTorque

I have a family floater of ~1 CR coverage (15 lakhs base and 90 lakhs super top-up policy) for my wife, two daughters, and me. And, I have a separate policy for my mother (5 lakhs base and 5 lakhs super top-up policy).

I have been contemplating this insurance for me and family. If you don't mind sharing, could you please share more details about policy /company etc.