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Part 1 - Journey towards Financial Freedom

Updated: May 7, 2021

Its been almost 7 years since I completed my graduation and 4 years post my MBA from IIM Indore. During all these years and even during my MBA, I was never introduced to the concept of Personal Financial Planning. Yes, I learnt about Corporate Finance, Equity Markets, Fixed Income markets, Valuations, etc. etc. However, there was no dedicated course on managing personal finances, one of the most important aspects of one's life. In fact there is no such topic as finance which is taught in schools. We all go through rigorous educational curriculum, work hard for making money and often make a lot of sacrifices as well, however, I am not sure how many of us work equally hard to ensure that our money works for us as well. Back in the Corporate World after my education, just like many others, I started creating regular Fixed Deposits and investing the rest in the stock markets. Armed with an MBA from one of the finest institutes in India, I felt I had what it takes to make money in the stock market and started investing slowly. Most of my investments were in Small Caps and my equity portfolio within a matter of few months grew by around 30% (2016-2017 the Small caps were rising like anything and I thought I could ride the wave as well). Looking at my returns, I thought I had discovered a secret and the Small Cap space was the place to be in. Crazy for generating more and more returns and making quick bucks, I started investing heavily into the market. In spite of all my education and against my better judgement, without any research, I started investing based on newspaper recommendations, my bank and their highly qualified analyst's recommendations, tips from family and friends and what not. This was early 2018 when the small caps had become extremely over-valued and reached their peak. Within next few months, instead of going up, my portfolio was deep into losses. Heavy losses which wiped all my previous gains as well. A lesson well deserved I believe. I now feel happy that this crash happened early enough otherwise perhaps even today I would have continued my crazy investing. Just to let you know, I still invest in equities, although in a very different way and only after doing through research with a extremely long term investment horizon.

Anyhow, after my equity portfolio turning completely red, I stopped investing altogether and did not invest for a long period of time (and diverted all my earnings to another bad instrument - fully taxable SBI FDs with so called guaranteed returns (which can't even beat inflation and keep deducting tax every quarter). However, I had somewhat realized what I was doing was not right. During this time, I had no idea how much my wife and I actually owned and what was our actual net worth. Forget about having any idea about what rate it was growing or if it was growing at all. Our investments and savings were scattered across PPF, EPF, EPS, tiny sums in multiple savings accounts and multiple Fixed deposit accounts (thanks to my Sweep-in account which automatically created FDs every month in my salary account). I also had no idea how much we were spending on a month-to-month basis. If you can relate to this, welcome to the Club :)

This is when I started taking stock of all our personal finances - our savings, expenses, investments, etc. in a very meticulous and detailed manner. I built my own investment & expense tracker and prepared a list of all our assets & liabilities.

Few very interesting & depressing things I found out:

  • Our monthly expenses were way way more than what I had anticipated.

  • 40% of our assets were in Govt. Schemes - PPF, EPF, EPS -> Decent growth rate but almost illiquid.

  • Almost 50% was in various Fixed Deposit & Savings accounts (Basically cash) - Lets not even talk about growth rates here post taxes and inflation

  • Less than 10% was in equities !! And here I was.... losing my sleep over 3-4% loss in my overall asset portfolio rather than worrying about the 50% in extremely low rate Savings/ FD accounts which was probably degrowing silently.

This was an eye-opener. We realized that in order to be wealthy, we had to make drastic changes in all aspects of managing our personal finances. This was the beginning of our journey towards attaining financial independence.

In the next few articles, I'll talk about my financial health tracker, expense tracker, investments, portfolio management and asset allocation strategies and long term financial planning techniques.

Please do let me know your thoughts. You can view all my other posts here.

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