We all follow certain principles, rules, beliefs or maxims which control or influence our behavior. We learn these principles to be correct through our own personal experiences.
A ‘principle‘ is a kind of rule, belief, or idea that guides you. We generally say that a good, ethical person has a lot of principles.
Even when it comes to investment planning or financial planning, most of us do follow and believe in certain principles.
I strongly believe that most of us inculcate certain personal financial planning principles through real-life experiences (knowingly or unknowingly) and also based on certain real-life incidents.
For example : One of my friends had incurred huge losses during 2011 stock market crash, since then his investment principle is not to touch Equities/stocks.
Below are certain factors that generally influence ones investment decisions and thus form part of his/her own principles and rules ;
- Past investment experiences
- Your attitude to risk and ability to bear risk
- Family members’ opinions and perceptions about investments
- Your Family’s back-ground
- Investment decisions taken by your peers and other well-wishers
- Your financial resources
- Your Age
- Family commitments
- Investment horizon (Time-frame to reach your goals)
- Micro & Macro economic factors
- Your investment knowledge
In this post, I would like to discuss about my personal financial planning principles with you all. These are the investment principles that I have been following over the last many years and hopefully may follow for many years to come.
I have inculcated these financial planning principles based on my personal real-life experiences, life events and to certain extent, based on my family members’ perception about investments.
Personal Financial planning principles that I follow..
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‘Think Negative’ First (be prepared for the worst but hope for the best!)
- As far as Investments are concerned, I strongly believe in ‘positive power of negative thinking’. We (as a family) make sure that we are prepared for the worst first and then plan/hope for the best.
- I have lost my father when I was a very young boy and may be to a great extent this has influenced my way of thinking. I always think negative first, prepare for any adverse event(s) mentally. But, at the same time I put sincere efforts to overcome any challenges.
- When I prepare/plan for the worst, I am actually planning for something negative that may or may not happen. When I hope for the best, it instills a positive feeling in me.
- May be because of this attitude, I have taken adequate life insurance, health insurance, personal accident insurance cover and home insurance covers, long-time back. I always give high priority to protect what I (we) have first.
- I follow this principle when I plan for my Emergency Fund too. We maintain adequate ‘rainy day fund’, to meet any unforeseen expenses.
- My wife keeps saying to me that whenever I expect any income/profit, I expect a lower figure and whenever I had to pay for something or meet any expenses, I plan for a higher amount.
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Save & Invest more
- I follow goal-based investment approach. I set a goal amount which is more than adequate, with a clear time-frame and with a realistic rate of return.
- The amount of savings that I can make is in my hands, whereas I can only hope for the best possible returns on my investments, as the investment returns are subject to various risk factors, especially for investment avenues like Equities, mutual funds, real estate etc.,
- I do not know whether ‘Red Bull’ can give us Wings or not, but surely believe that ‘saving more and investing in right avenues’ can give us the Wings to fly (freedom). So, say ‘More’ to Savings -> Say WINGS!
- My Wife often says to me that we are always in investment/savings mode, never in expenses mode. I reply to her, ‘let’s save and invest as much as possible NOW & as early as possible!’ But, we are not making any major sacrifices – we just Invest as much as we comfortably can. We live a content and comfortable life but not a luxury life.
- We invest more when markets fall, we stick to our conviction, as much as possible, we do not alter our long-term investment plans based on ‘market-slump’.
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Realistic Expectations
- As opined in the above points, I assume realistic returns on my investments. My portfolio primarily comprises Equity Mutual Funds and Real-estate investments (land, residential and commercial buildings and not Flats). For example: From Balanced Equity funds, I expect around 10% over a period of 5+ years and on Equity funds, around 12% over a period of 10+ years, anything above is a bonus! From my real-estate investments, I am not really worried about capital appreciation, as I am expecting only rental income from them, so my expectation on Rental yield is around 4 to 6% on my property investments.
- I review my Mutual fund portfolio‘s performance once in 6 months, and give higher importance to my overall portfolio returns than to individual fund returns. If my portfolio total returns are in-line with my expectations, I make sure to track the low performers once in 1-3 years and then take the decision to churn the portfolio (if required).
- There were times when I had unrealistic expectations from equity markets and burnt my fingers, realized that its almost impossible to make quick money! We invest in a Time Deposit (Fixed Deposit) and wait for 365 days to get 8% returns. So, why not implement the same strategy with respect to stock markets.
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Aiming for ‘Two Income streams’ (Active & Passive incomes)
- I was a salaried individual till 2009, was happy with my salary, but always used to feel this is not my cup of tea (due to low job satisfaction), often used to feel that I need to do more meaningful work. In 2009-10, decided to give more importance to LIFE PLANNING than CAREER PLANNING! I have been doing what I like to do, the work which gives me more job satisfaction and of-course the MONEY as well!
- We have been aiming for two steady income streams, active as well as passive incomes. I get Advertisement revenues (active income) from my blogging work and have been planning to achieve the same quantum of money through my real-estate investments. Glad to inform that we will soon be going to achieve it!
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Cash Flow Planning & Budgeting
- My spouse and myself, we both know the exact cash inflows and cash out-flows every month (planned ones). This helps us to save, invest and plan well.
- Whenever there is a major life event happens, we maintain an Expense book to track our family’s expenses. For example : After getting married, we tracked our living expenses for one full year. Recently, after relocating from Bengaluru to my home-town in Andhra Pradesh, we tracked our living expenses for 6 months, to know the difference in cost of living in Bangalore Vs my home-town (it’s a small town).
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No Debts (Loans)
- Since my childhood I have been hearing my mother saying that if we have to acquire/buy anything by taking a loan then we do not deserve having it, as of now. Personally, even I do not like taking loans, hence never took any type of loan till date. (May be, this is not applicable for an Education loan!)
- The only ‘Credit’ I have is ‘Credit Card balance’. I use credit card (have only one card) to pay all my utility bills. But, we make sure to pay entire outstanding balance every month, well before the due date and there has been no late payment or defaults since 2004. I check my credit report once in a year.
For me, family always comes first! They have been supporting me in whatever I do and its my responsibility to earn, save and invest adequately for their well-being (financially & non-financially). I make sure to discuss about these investment principles very often and also share all the investment details with my family members. In fact, all the major investment decisions are taken together.
Now that you know my personal financial planning principles, it’s time to share yours! Kindly share the investment principles that you follow. Cheers!
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(Image courtesy of Stuart Miles at FreeDigitalPhotos.net) (Post published on : 23-August-2017)
This post was last modified on July 11, 2023 9:16 pm
View Comments
Hi Sreekanth, Recently I have lost my job due to market competition & company is about to close the business. I have term insurance of 50 L & premium is due in Sept. Should I continue to pay the premium or shall stop?. Also I am thinking of Intra-day trading, can I able to get some income from it?untill I find the next job.. I have 2 children & wife has a job. Pl suggest.
Dear Shreyas,
At any cost, kindly try paying your term insurance premium.
It can just be a temporary challenge, your financial position can improve soon..!
Suggest you not to venture into intra-day-trading..
Kindly read : 10 Reasons to avoid Short Term Trading in Stock Markets
Do you maintain an Emergency fund?
Dear Sree, I like the 'personal' touch about your articles! That makes your blog stand apart and interesting to read. Please keep on bringing them, a 'personal' opinion!
I'm sad to know you lost your father in young age. I also lost my father 5yr ago and everything's on me now.
He didn't made any house, instead he saved & invested money.
I bought a flat with home loan of 12 lakhs @ 9%, I do prepay the home loan by 50k every 3-4 month from my FDs interest & monthly savings. I believe in debt free life so that I don't have to compulsorily do a job under anyone. I'm unmarried 28 male, with plan to marry by 30. Is this correct way? Or should I invest the amount and let the EMI continue?
Another thing is I've not taken any life insurance as I've 30 lakhs FDs which I inherited from my father. My theory is that why pay for premium when I have that much amount in cash with me which my family will get after my death. Although I've adequate PA insurance coverage so that I can get money if I survive any major accident. Is this theory correct?
I've some MF investments and wish to put those 50Ks after loan closure as SIP in MFs.
Dear Adamya,
Thank you for the appreciation and following my blog posts!
I believe that investing in appropriate investment options instead of pre-paying your home loan can be a better and prudent option.
Because, you can afford to take high risk, save and invest more now...so, you may re-thing and re-assess your strategy.
If you do not have any dependent, you may postpone buying a term insurance cover, but it is required.
Kindly read : If life is unpredictable, insurance cant be optional!
Dear Sree, thanks for your quick answer. What are the investment avenues will you suggest based on the info given above in my case?
I'm planning to start investing in stock market this year with small amount. Your articles (or a series of them) can be really helpful for many of us. Starting with some basics along with some methodologies you follow for picking stocks or creating/maintaining your stock portfolio. You've a good way of explaining things.
I'm also curious on your learning curve about stocks, how your started and how you reached the position you're in today. How your mentality changed from beginner as you matured in this avenue.
Dear Adamya,
Kindly note that I do not invest in Stocks (do not own any stock) and do not provide suggestions too.
You may consider Equity funds as one of the investment avenues.
Suggested articles :
How to pick right mutual fund schemes?
Best Equity funds
MF portfolio overlap analysis tools
What is 200 DMA?
Dear Sreekanth,
Very good article. I dont know what prompted you to share your principles. But they are all valid and valued principles.
"If we have to acquire/buy anything by taking a loan then we do not deserve having it". -Your mother's view
"We live a content and comfortable life but not a luxury life".-Your practice
Both are motivating quotes for today's majority of youth who prefer Iphones at EMIs rather than save and purchase.
"No debt + no stress = Better life". This is also my experience after closing all the loans with my voluntary retirement benefits.
Overall, my compliments to you on realisation of all these principles at a younger age unlike me who realised my investment mistakes (committed by me during my service) only after my voluntary retirement. Of course, as you said, "Access’to different financial products has also improved tremendously over the last few years".
I cleared my CFP recently. I am a regular follower of your blog (before and after CFP). My Good Wishes to you and keep up the good work.
Venugopa
Thank you dear Venugopal ji.
Congratulations on clearing CFP.
Sir , Awesome article ! Read it twice ! Really a great inspiration !
Thank you for this great Article !
Thank you dear Prem. Glad you like this post!
Keep visiting ReLakhs..
Dear sree,
I would like to follow the same principles as yours..
But, when we get housing loan and EMI rather rent, it's an advantage.
so this type of loan is good na????
Dear Kamal,
Rent Vs EMI (Buy) is a never ending debate, advantage or disadvantage? - can be dependent on many factors.
Hi Sreekanth,
Thanks for sharing sincerely your investment strategy . I echo your thoughts and investment plans.
I believe in your thoughts and following on similar lines, however needs to work on passive income streams.
It's great and one can follow this strategy for long time survival and better life.
Kudos,
Regards,
Shravan
Dear Shravan..Thank you for endorsing my views.
With a little bit of planning, anything can be achievable. All the very best!
Dear Sreekanth
I am 66, follow your blog regularly and am motivated by your focus at such an young age.
Keep up the good wor
Dear Ramaswamy ji.. Thank you for your appreciation!
Wonderful article. Thanks for sharing your financial principles.
Thank you Rushi!
How are you doing?
Just curios, what is the difference in cost of living of Bangalore and a small town in AP. I am from AP, so want know.
Dear Swamy,
It depends on ones lifestyle... We are seeing a difference of around 30 to 40% in our monthly living expenses.
Major diff in expenses like Transportation, recreation, food, school fees etc..
Very good article, life itself teach us many things. Learn to be money wise, don't be greedy.
Yes, rightly said dear Narayana !
Live within our means should be the motto!