When Dilbert cartoonist Scott Adams could not find a publisher for a one-page book on “Everything you need to know about financial planning”, he was forced to write a 368-page book – Dilbert and the Way of the Weasels. (Ref: MyMoneyBlog)
You don’t even need a page to hold all the advice that Adams gives. All you need is an index card! To all those who have used a library before the era of computerized indexing, an index card is a 3-inch by 5-inch card on which authors are catalogued.
“LA2-katalogkort” by This photo (C) by Lars Aronsson.
In Jan 2016, the New York Times tweeted the following.
We asked financial experts to squeeze their best advice onto a single index card https://t.co/ucevOGzcVF
— The New York Times (@nytimes) January 9, 2016
The image above is the index card created by Dilbert cartoonist Scott Adams.
The following is an updated commentary on the advice for Indian young earners.
Point 4: This would be EPF or NPS for us. If NPS comes with employer contributions, it is a good idea to opt for it if you are unlikely to shift jobs. Otherwise, stay away from NPS. Learn more: Three changes that can make the NPS an attractive retirement solution.
In any case, it is incorrect to maximise EPF/NPS or PPF just for the sake of it! Asset allocation is the key. See: Why I maximized PPF investment only after ten years.
Point 5: Buying a house is not a bad idea; buying a house with a large EMI is a terrible idea. Do not rush to buy a house (if you need one). Buy one with a home loan after you can reasonably balance the EMI with investments and expenses. See: How to buy a house with a home loan: Tips to maximize benefits.
In any case, never buy property as an investment. See Five reasons why I will never invest in real estate.
Point 6: Six months’ worth of expenses is good; Even after you hit this mark, keep away 10% for emergencies until your networth becomes significant.
Point 7 – Minimise fees (essentially) When I first wrote about this, I did not have the comprehensive evidence available today that half of the actively managed mutual funds struggle to beat the benchmarks consistently.
Today we have that:
So we can fall right in line with his advice with one caveat: choose Index mutual funds and not ETFs. Indian ETFs have significant tracking errors and liquidity issues. Finding a buyer for your units can be difficult when you need to exit.
Point 8: DIY or choose a financial advisor who charges a flat fee only!
If you are a DIY investor, this does not apply to you. If you need some help with DIYing, start with this free step-by-step guide: Free ebook: Re-assemble Step by step money management basics.
If you want to create your own financial plan, you can consider our robo advisory tool.
If you are looking for someone to offer you professional advice, I suggest the following steps:
Step 1: Choose only a SEBI Registered Investment Adviser (RIA) – SEBI has cautioned investors not to deal with others. You can choose from our curated list: List of Fee-only Financial Planners in India (SEBI RIAs)
Step 2: Tell them upfront that you will only pay for financial advice and will invest in direct mutual fund plans. You don’t need to worry about this if you are working with someone from our list. Want some proof? See: 685 investors rate their experience with SEBI registered fee-only advisors. Currently, more than 1000 readers are working with them.
Step 3: Tell them upfront that you will only pay a flat fee initially for plan creation and every year for review. Do not accept a fee based on your net worth. You might as well invest in regular mutual fund plans. Again, you don’t need to worry about this if you are working with someone from our list.
Step 4: Creating a financial plan is only the first step. Reviewing it each year is crucial.
That is it! All the financial advice you need can fit in a 3×5 inch index card! Writing them down is easy, but implementing them is hard. Take one step at a time consistently and see the improvement.
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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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