In this edition of the reader story, we meet 27-year-old Pretorius. He shares his mistakes, his redefined goals and how he tries to focus on the big picture and keep things simple.
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning to preserve the tone and emotions of the writers.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. Now over to Pretorius.
Hi, This is Pretorius. I am a 27-year Software Engineer. For me, personal finance is more of a hobby these days because I have had a liking for numbers since childhood. I liked to crunch numbers for fun through pure brute force during childhood. So it has always fascinated me since primary school to deal with money management. Coming from a minimalist family, for us being prudent and frugal with money came as second nature. I review my personal portfolio on a quarterly basis, and I would like to thank Pattu sir for giving me this opportunity to share this memory stamp with all of you folks.
My mistakes: I joined my first job post-college with a decent salary. Despite having a decent cash flow, I kept most of it lying in FDs and saving banks. Like all young earners, when it comes to personal finance, I invested just to reduce the tax payments that I had to make every year during the tax proof collection season. Obviously, this led to choosing bad instruments like tax saver FDs, and NPS (even though I was an EPF account holder), investing more than 1.5l in 80c instruments like PPF and ELSS. I invested 50k every year for three years into NPS to reduce the tax by 10-15k.
Learnings: I read about freefincal and had time to explore other sites and YouTube channels in 2019. Initially, I found Freefincal & Pattu sir to be daunting, and how could one save this big an amount for retirement? But slowly, Inflation, risk management, and goal-based investing with proper asset allocation appealed to me. His approach alone made sense to me. Other mediums felt like they were selling their products or ads.
I stopped my NPS contributions (hoping to remove all the amount before 2024) as it will be five years old by then and within the minimal limit (2.5L).
My journey: Being single and with independent parents, my journey is a tunnel-visioned program involving my financial freedom for now. I started to analyze my tax saving instruments and learned that EPF contributions were also part of 80C. Planned my 80C investments around this, only investing a minimal amount in PPF and ELSS funds to cover the 80C limits.
Once my 80C is done, I started to move some of the FDs to liquid debt instruments like gilt funds to reduce tax on the interest (gains), and I didn’t need this money for a while. I used the covid crash as an opportunity to dump in money like a madman my I/E ratio was nearly 9:1 these days and I moved the remaining FDs into the mutual funds I had been using. I rebalanced once during April 2021 to the liquid debt instruments.
I started to invest in stocks as I wanted to cultivate this habit by mid-2021. Started this journey slowly and steadily using the 60:20:20 approach for now in direct stocks (Large: Mid: Small) as most of my mutual funds were predominantly large cap.
This risk measure works for me for now, at least. As Pattu sir says only things in our control are the cash influx and asset allocation- risk mitigation measures. The return expectations can be used as a guideline to check where we are and how much we need to invest. But this also has to be done with an open mind to course correct as and when needed. I expect a 9% return from the overall portfolio, so I am concentrating on increasing the amount I can invest.
I could invest 3-3.5 times my annual expenses in this covid phase, which helped me create a decent foundation for my FF journey. A couple of salary hikes and WFH helped this.
My current net worth is 19-20 times my annual expenses as of Jan 2023. Asset allocation is close to 60:40. This works for me and will rebalance if the 65:35 threshold is hit.
|Instrument||Percentage in total net worth|
|Fixed debt instruments||10.07%|
|Liquid debt instruments||30.02%|
|Equity in Mutual funds||41.16%|
|Equity in direct stocks+ RSUs||18.75%|
Fixed debt instruments: EPF,PPF, NPS and tax saver FDs.
Liquid debt instruments: PPFAS conservative hybrid and SBI gilt (not concerned about returns. My horizon is 10+ years using them as wealth accumulators)
Equity MF: MIRAE asset tax saver ELSS fund, axis Long term equity ELSS, UTI nifty50, PPFAS flexi cap with major chunk in the latter 2. Once my ELSS needs are over & 80c is covered with EPF PPF alone, I am contemplating moving them to UTI low volatility fund.
Term Life Insurance: I have six times my annual salary covered
Health insurance for self: 5L coverage is provided by the employer.
Emergency fund: ICICI arbitrage fund to cover the expenses for around 12 months. I prefer to keep it out of my net worth. This will be used to replace any appliances replacement also.
My investment in stocks helped me create an annual dividend income, for now, it is hovering around 0.25 times one month’s expenses. It is quite little, but I need to build this to cover maybe 3-4 months’ expenses.
Game plan for 2023: Look to invest more in stocks and increase emergency funds to 18 months’ expenses. Increase dividend income to one month’s expenses (try at least). I don’t invest in dividend stocks; I prefer to earn a decent dividend in growth stocks like TCS, and HUL (not a reco). Try to invest four times my annual expenses this year.
My piece of Gyan is to keep it simple and focus on the cash influx instead of concentrating on products and returns as they are secondary.
Reader stories published earlier
As regular readers may know, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020. We asked regular readers to share how they review their investments and track financial goals.
These published audits have had a compounding effect on readers. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.
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About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
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