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
Really a superb article.
Thanks for sharing such a valuable information with readers. It broadens my views on financial planning as well as the value of money.
Thanks for this article ☺️
Hi
I have started investing in last year. As of now my money is parked in the following instruments
ELSS (Franklin India Taxshied Direct Growth) : 100000 . (An SIP of 10000 is currently running till march 2018.)
Liquid Fund (HDFC Liquid Fund Direct Growth) : 150000
Savings Bank HDFC :130000
Holds' 2 credit card : 150000 credit balance per month.
I'm earning monthly around 45000 and job is stable.Since I come from a upper middle class family, i have enough financial backup
in case of an emergency too.
My monthly expenses comes around 15000 per month including rent and everything.
As of now im yet to marry , and there is not much goals to accomplish currently. May be i will get married in 2 years.
So my current goal is maximum wealth creation.
In 2018 , im planning to continue invest in ELSS (around 120000 as SIP of 10000 each month).
1) Do i need to change from Franklin to any other fund for ELSS?
I dont see any chances of redeeming my Liquid funds soon.
2) Ideally i would like to limit my savings balance to a max of Rs 50000.Surplus cash above that can be invested in proper investments (Min 3 months to Max 1 year)
Please suggest me exact investment type for this.
Dear Vishnu,
1 - You may continue with Franklin ELSS. (This fund has lower risk and moderate returns profile when compared to other popular ELSS funds).
Considering your profile, in case you would like to take a little higher risk, can consider to add one more ELSS fund ie Birla Taxrelief '96 fund. This fund has allocation of around 50% to mid-cap stocks.
2 - You may consider Ultra short term debt fund or Arbitrage fund. The gains on arbitrage fund if held for >1 year are tax-free.
Hi Sreekant,
I really find it aligned to my point of view where you mentioned regarding multiple income streams, specifically where you mentioned regarding passive income sources. It would have been more enjoyable if you could provide more real life examples.
Dear Gaurab,
Personally, I get passive income from my property investments through rentals!
Are you suggesting me to write about - ways to get passive income?? Do let me know!
Hi Srreekanth,
You always inspire with your blogs , this is one of your articles has lot of information for personal finance planning.
And i would like to ask your experience moving to remote town in andhra from bangalore ? how is that experience ?
Thanks for sharing your ideas.
---Siva
Dear Siv,
Thank you for reading my blog posts!
We had to relocate due to personal reasons. As, I am into full-time blogging, which can be done from anywhere (just need a comp with net connection), no big difference in terms of career or my earnings.
However, our family's living expenses have come down significantly in the last 2 years, since we relocated. The main challenging factor is - lack of quality education for my kid. As my spouse is a well educated person, putting her best efforts to assist him....
Personally, we believe that the advantages of living in a small town out-weigh the disadvantages...
Hi Srikanth,
I'm very happy that you moved back to your home town.
I read some of your blogs. Thank you very much for all your efforts.
I've a plan to move back to my hometown to pursue business dream. I'm in USA for last 5 years.
Can you please share your contact to my email?. I want to have chat with you.
Thanks,
Dear PG .. Kindly reach me through the Contact page..
Hi Sreekanth,
Thanks for sharing your experience...
-Siv
One of the toughest things to do is save and invest more. Good point brought forward. Ideally we are all occupied with our monthly commitments and never ending expenses.
Hi Sree,
Thank you for your awesome articles and i read them regularly. I need your advice. I have these funds in my portfolio for long term and investing via SIPs since last few years. Do you think they are ok or some change needed?
Mirae asset india opp. Direct growth
Mirae emerging bluechip direct growth
Franklin high growth direct
franklin smaller comp. direct growth
And these debt which are for emergency and replacement of FDs
Franklin ultra short bond direct growth
Aditya Birla Sun Life Floating Rate Fund - Long Term Plan - Direct Plan
Please advise?
Mutual funds like stocks are a part of the equity of promoter.the buyer is buying the debt part of the company.the promoter for example a company of 100 will have 10 rupees equity and 90 rupees debt,the promoter after making huge profits devides his 10 to a million shares and. Exit.this million shares are again devided into 100 million shares in mutual funds, so we buying just liability of companies. No profit forget everything.
Dear Gagan,
Thank you for following my blog posts!
Equity portfolio looks fine.
Both are ultra-short term debt funds. Kindly note that these can be riskier than Liquid funds.
Kindly read:
What are different types of Debt funds?
My Emergency Fund planning
So sad to read your article! By moving away from Bengaluru to remote town both you and your wife lost many opportunities and actually in India it is reversed inflation in small towns actually working inflation is very high! You are black mailed by everyone in small towns in a.p. due to poor work culture! So sad about your decision
EMI`s should not drive your life !
Bigger risk has bigger loss and gains,so play medium not to high not to low.
i hv just supported your views against that aggressive guy.
Dear IJ..Yes, I get your point, thank you for sharing your views.
Please suggest my emergency fund 5 to 8 lakh where i can put at least looking between 9 to 10 percent return for 1.5 to 2 year duration from here.
Please dont recommend any particular article or pool of funds because i m looking for 1 or 2 funds recommendation from you sir.
Mine one friend is invested any ICICI PRU divended monthly option schemes Nav around that fund nearly 24.32 rs. What about your views on this because he invested 1cr in last month and getting l lakh rs dividend every month.
thanks
buying a house for 50 lakhs is sensible
=starting a company.
but buying a small window in the same house for 50 lakhs ! is meaningless
= buying stock=stock markets"
. buying a small tile in that house for 50 lakhs is "foolish"= mutual fund buying! if the house price comes down! your "tile=mutual fund returns will never come!"
so any body buys a mutual fund should know what exactly he is buying!
hope you understand!
the point is the buyer is buying a one millionth of a company and hundred million price! so mutual funds are never meant to be profitable!
Dear sureendra ..Thank you for sharing your views.
But I believe that investing in MFs is one of the best ways to accumulate wealth over long-term.
Dear IJ,
Are you planning to accumulate your emergency fund?
(or) Are you planning to re-invest the accumulated emergency fund in some other investment avenues?
I have in few ultrashort and few amount in FDs but not sure now where to use but looking for safe return 9to 10 percent.
It could be used in after 2-3 years in home purchase down payment.
please also reply about my friends investment also because he was saying it is very safe fund to get more than 12% monthly.
Dear IJ,
In the current interest rate scenario, to get around 10% safe return in 2 years, it is next to impossible.
You may continue with Ultrashort term / short term funds. You may also have a look at Arbitrage funds.
What is the scheme name where your friend has invested in??
that is Icici prudential balanced fund (MD).
Wanted to know your analysis for this and safety.?
Is any fund much better and secure in this category .please know?
Dear IJ,
It is an equity oriented balanced fund, can be a very risky bet, for a time-frame of 2 years.
Kindly note that returns are not guaranteed on Mutual funds. Your friend's assumption that 'they are very safe' is incorrect.
Dear IJ,
As far as Investment options are concerned...my personal favorite are BALANCED EQUITY FUNDS..not very high risk but can give decent returns as well in medium to long term...
Dear Surendranehru,
Our decision to relocate to home-town was purely based on personal reasons and not based on money/cost of living (in case you are assuming so...).
In our case, in terms of opportunities, glad to inform you that we have status-quo (nothing to lose) !
No debt.no stress = no growth, stress and debt are like fire, without"fire" you can't cook! How well you control and use debt and stress to your advantage is life! People have been using "fire" debt" stress"to their advantage and leading a better life!
Dear SURENDRANEHRU,
Thank you for sharing your views.
I believe that GROWTH can be achieved without acquiring any DEBT too.
In my experience, I have seen good number of people who are unable to manage/control their debts and leading a stressful life.
Totally useless approach! Sorry to say! You end up nowhere by this model! In this present economics at young age you are supposed to take debt and risk! Totally useless and brainless
Dear SURENDRANEHRU,
I have great conviction that my principles are useful to me/my family.
However, these may or may not be applicable/relevant to your finances, appreciate your opinion though.
By the by, could you kindly justify ;
1) What do you mean by - 'in present economics at young age you are supposed to take debt and risk '?
2) Why do you think my principles are useless and brainless?
Hi Sreekanth,
Thanks for your articles. I have been reading your blog and it is very helpful. I would like to purchase a home in Hyderabad for budget of 40-50L. I would like to do it after 2-3 years by investing some amount in Mutual funds in every month to build corpus for down payment. My friends suggest to buy now with 10%down payment and remain 90% as loan, which I am not really convinced. Can you suggest what can be done?
Dear Venkatesh,
May I know if you are saving/investing adequately for your other high priority financial goals?
If you acquire your home loan now, will you be able to maintain your savings rate?
If your investment horizon is around 3years, suggest you not to invest in Equity oriented funds, you may consider Short term debt funds or Conservative MIP Funds.
Kindly read :
Best Debt funds
Best MIP Funds