A compilation of what i read and what i know about personal finance:
Financial safety Net: These days I am involved in a very challenging DMAIC project (Define Measure analyze Improve Control). Immediately vinay’s(my friend) question will be “what’s your savings mukundhan?” “vinay, This project is all about financial savings”.. Let me give you a brief background to my DMAIC project. One day I was in deep introspection thinking about money. As usual my wife interjected “what are you thinking so deeply about? “About me right ?” My inner voice replied “ No Honey its about money”. My external voice interpreted my inner voice to my wife” How much do you think we need for financial security?
“10 crores“…bang came the reply…I had just heard the customer voice, My DMAIC project was thus born…I was taken aback…and asked too feebly “Don’t you think this is too ambitious a target? … “Lets measure” was the curt reply from my wife.
So we set out to the measure phase. It was all about knowing how much do we earn & spend as a family per month. The income part was clear and measurable. It was the expenditure that clearly stumped us. Money was slipping through our hands ….but we could not determine where it was sinking into. We needed a measurement system in place. So I got this daily expenditure tracking sheet from my friend. We started recording each & every expense. Along with it we started a Joint Bank a/c which we named as expense A/c. All expenses will now go through this single window A/c only.
With the measurement system in place, it was time to analyze the data collected for over 4 months. Analysis showed that cash flow was more or less equal to the inflow. The writing was on the wall. If we did not act now, I would have to soon approach my father for a bailout package. So we started to layout the plan for financial improvement….the Improve phase.
The plan was to create three layers of financial safety net…with decreasing levels of liquidity but with increasing level of returns. First line of defense was the cash in savings a/c. Goal is to have enough that can service 3 months of our expenses. Our measurement system helped us here.
Second line of defense was Even more cash. This time in the Short term fixed deposits that can earn more returns than the savings a/c. Together the first & second safety nets should serve enough cash to survive at least 6 months without any income.
With the house set in order for short term …came the focus on the long term investments. The third safety net comprising of Long term investments which would be an amalgam of PPF, Equities & real Estate. I personally like the PPF because it packs a punch due to the power of compounding. For example, an investment of mere Rs.1000 / month over 30 years will result in a staggering amount of 27 Lakhs.
Stocks….mean Shocks these days. We stay away from stocks simply because we can’t decipher the financial statement to identify a good company from a bad one.However we take the mutual funds route through systematic investments plan.at this point of time,some of my blue chips have turned red…it seems their chips are down. TIGER funds are changing spots and performing like cats. Nevertheless I am hopeful.
Real estate is a separate game in itself. Personally , I think one should own their own roof at least somewhere if not where they live. Currently we lack the financial teeth to bite into the realty pie of Bangalore. Until sometime later realty will be virtual reality for us.
With the Safety Nets in place its time to look at the control plan. According to me , In personal finance the control plan really is in personal discipline. Discipline to spend wisely & Invest wisely.
So the 10 crore question is …whether the Improve & Control plan can meet the Customer Voice ? Vinay has to wait a bit …at least till I retire. Financial security to me seems to be a journey rather than a destination. An exciting journey that rides on the crests & troughs of the Sensex spikes & Interest rate fluctuations with the safety nets acting as Shock absorbers.
We have started our journey. Have you started yours yet? If not Please do
Financial safety Net: These days I am involved in a very challenging DMAIC project (Define Measure analyze Improve Control). Immediately vinay’s(my friend) question will be “what’s your savings mukundhan?” “vinay, This project is all about financial savings”.. Let me give you a brief background to my DMAIC project. One day I was in deep introspection thinking about money. As usual my wife interjected “what are you thinking so deeply about? “About me right ?” My inner voice replied “ No Honey its about money”. My external voice interpreted my inner voice to my wife” How much do you think we need for financial security?
“10 crores“…bang came the reply…I had just heard the customer voice, My DMAIC project was thus born…I was taken aback…and asked too feebly “Don’t you think this is too ambitious a target? … “Lets measure” was the curt reply from my wife.
So we set out to the measure phase. It was all about knowing how much do we earn & spend as a family per month. The income part was clear and measurable. It was the expenditure that clearly stumped us. Money was slipping through our hands ….but we could not determine where it was sinking into. We needed a measurement system in place. So I got this daily expenditure tracking sheet from my friend. We started recording each & every expense. Along with it we started a Joint Bank a/c which we named as expense A/c. All expenses will now go through this single window A/c only.
With the measurement system in place, it was time to analyze the data collected for over 4 months. Analysis showed that cash flow was more or less equal to the inflow. The writing was on the wall. If we did not act now, I would have to soon approach my father for a bailout package. So we started to layout the plan for financial improvement….the Improve phase.
The plan was to create three layers of financial safety net…with decreasing levels of liquidity but with increasing level of returns. First line of defense was the cash in savings a/c. Goal is to have enough that can service 3 months of our expenses. Our measurement system helped us here.
Second line of defense was Even more cash. This time in the Short term fixed deposits that can earn more returns than the savings a/c. Together the first & second safety nets should serve enough cash to survive at least 6 months without any income.
With the house set in order for short term …came the focus on the long term investments. The third safety net comprising of Long term investments which would be an amalgam of PPF, Equities & real Estate. I personally like the PPF because it packs a punch due to the power of compounding. For example, an investment of mere Rs.1000 / month over 30 years will result in a staggering amount of 27 Lakhs.
Stocks….mean Shocks these days. We stay away from stocks simply because we can’t decipher the financial statement to identify a good company from a bad one.However we take the mutual funds route through systematic investments plan.at this point of time,some of my blue chips have turned red…it seems their chips are down. TIGER funds are changing spots and performing like cats. Nevertheless I am hopeful.
Real estate is a separate game in itself. Personally , I think one should own their own roof at least somewhere if not where they live. Currently we lack the financial teeth to bite into the realty pie of Bangalore. Until sometime later realty will be virtual reality for us.
With the Safety Nets in place its time to look at the control plan. According to me , In personal finance the control plan really is in personal discipline. Discipline to spend wisely & Invest wisely.
So the 10 crore question is …whether the Improve & Control plan can meet the Customer Voice ? Vinay has to wait a bit …at least till I retire. Financial security to me seems to be a journey rather than a destination. An exciting journey that rides on the crests & troughs of the Sensex spikes & Interest rate fluctuations with the safety nets acting as Shock absorbers.
We have started our journey. Have you started yours yet? If not Please do
Comments
Also, some banks allow one to automatically track and categorize expenses based on the Point Of Sale. If you use a Credit Card to build history to be able to qualify for a loan for a big ticket item in the future, it is wise to pay it off at the end of the month. One way of losing money 'through the cracks' is paying interest when you cannot afford it. Of course, only use a credit card if you have the discipline not to get carried away and overspend.
Another system of financial discipline is to purchase items that serve dual purposes. Example: Buy a car that is also a collectible so that it appreciates in value over time. Or buy a project (old house, car, furniture, etc) that you can use as a hobby and add value to while keeping yourself occupied. Art as an investment is serious business. Jewelery is another example of something that offers marginal liquidity. This is your tertiary financial net.
Also, if you have kids, it is never too early to start a college fund for them. Just my $0.02
Amith.
I agree with owning the roof atleast somewhere ..... if u can't do it in the current city... atleast somewhere. It makes you feel better about the financial security. Nicely written..
Raj