Profession : Software Engineer
Salary : Good
Years in Job : ~10 years
House : Rented
Savings : Very low
Net Worth : Negligible
Without going into the story behind this, I can only say that this was me about one and a half years back. I realized I had to fix things up. The first thing I did was to read lots of articles, blogs and books on personal finance. Once I was comfortable with the basics of personal finance, I started looking for a financial advisor. But it was a long and slow exercise. I talked to many advisors, some independent, some working for financial service companies and some from banks. I didn’t find anyone good enough. Luckily after a long search, I found an advisor who knew what he was doing. And better, he was not selling me any financial product. I sat with my advisor, gave him my numbers and finalized a financial plan. Though it was not a 360 degree plan, it was simple enough for me to understand & it confirmed to the basics of investment.
Knowing that I was prone to spending, I created a monthly budget. To keep it simple I marked three envelops with “Household expense”, “Bills” and “Petrol”. I would put a fixed amount in each envelop at the start of every month. Though it took time to stabilize the expenses, it impacted my expense pattern significantly. In fact, even today l use the same method for my monthly budget. As suggested by my advisor, I started investing thru SIP towards my retirement & house. I bought a term policy for protection. I also bought a ULIP child plan (I know that the purist out there will question it) for my son. After about a year, I was pretty comfortable about my finances.
What I learnt (and I am still learning) during this period can be summarized as -
- Personal finance is no rocket science.
- It is as much about human psychology as it is about numbers.
- It’s very important to differentiate between needs & wants. Unlike wants, needs are mostly not very costly. As a thumb rule, if you plan to buy something pretty costly, the chances are that it is not a need but a want. This may not sound very logical, but believe me, it holds ground most of times.
- Invest every month, preferably a minimum fixed amount.
- Read everything on personal finance but don’t follow anything unless you understand it.
- Don’t invest in any product which you don’t understand well.
- Get a financial advisor.
- Don’t spend too much time trying to figure out your risk profile before you can allocate asset.
Follow this simple thumb rule if you like.
- 10+ years is for equity only.
- 5 years or less is for debt only.
- Between 5 to 10 years, well, no one clearly knows. You are free to invest it your way.
This article is sourced from Khotapaisa for InvestmentYogi.
The author of this blog and article is a software professional from Bangalore.