In April 2022, we met Arka and Rupali, who are trying to balance their personal aspirations, like travelling and exploring new opportunities, with their quest for financial independence. This is a follow-up audit.
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. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence. Now over to Arka.
Thanks to the numerous audits of readers’ posts in freefincal, here I am writing my Second yearly investment audit (First audit). What I realized is, writing it gives me a lot of clarity of thoughts on how the previous year was and, more importantly, what we want to do better in next year.
Before we begin, I would like to share a small context about us (me and my wife). I am currently 35, working in an IT Consulting company in Bangalore and my wife is working as International Tax Consultant in a consulting firm.
We got married in 2020, and pandemic is the time when we started planning our financial goals seriously. Prior to that my earnings were primarily distributed for marriage corpus, education loan and family commitments. With majority savings in PF and a small part in PPF and ELSS.
Though we have started late but the goal now is to maximize investment and for that keep ourselves mobile, skilled, and flexible, to grab any opportunities coming our way (irrespective of city and country).
Basics: First things first, let’s review our basics as of March 2023
Emergency Cash : 4 months of current mandatory expenses (in case where both of us stopped earning) and 20 months of mandatory expenses (in case the higher earning person stopped earning).
The runway in the scenario of “both of us stopped working” remained same compare to last year. But due to increase in Income, the runway in the scenario of “higher earning person stopped earning” has increased from 8 months to 20 months
Health Insurance:
- 10L base + 50L Super Top Up (Self and Wife)
- 10L base + 15L Super Top up (Parents)
Both of these are taken outside office health insurance and parents are not added in office health insurance.
Term Plan
- 8 years of current annual income (self)
- 5 years of current annual income (wife)
Income distribution: Below is the monthly distribution in different buckets of investments and expenses as a percentage of monthly earnings.
Key observations
- Certain buckets percentage has decreased because of increase in earnings compared to last year while the expenses for that bucket remained same
- Insurance premium includes term and medical insurance (both us and parents)
- The extra earning is primarily channelized for investments and travel.
- Travel is one of our primary expense buckets, as both of us like to travel, hence keep a significant amount to fulfill our travel dreams. To compensate that, we minimize discretionary spending’s like shopping and eating outs throughout the year and consider this travel corpus as our extended emergency bucket. We document our travel in our website and YouTube channel. Would love it if you have a look. Last year we visited Svalbard Islands (only 800 km from North pole). You can read our experience here: https://theexploringeyes.com/plan-a-trip-to-svalbard-from-india/
- We have identified as parents are getting older, all medical expenses always will not be covered under the insurance. Hence started a bucket for Medical Expense savings. Contributing a small amount in this bucket now and will continue that till it reaches the base health insurance policy amount (a long road to go !!)
Goals: Coming to the goals we have the following ones as on date
- Retirement Goal (Considering another 20 years away). Don’t mind working till mid 50s (if possible). However, will try to achieve financial independence (FI) before that. As of now the target is to reach 35 years of expense as corpus for considering FI
- Buying a house – currently don’t have a timeline in mind. Most probably not before 7/8 years. Also depends on location of work and other variables at that time. The idea is to use the education loan fund (will be over in coming financial year) and some more amount to put in retirement bucket only and consider house purchase as a unified goal along with retirement. However, asset allocation needs to be worked on here
- Currently don’t have any kids and will plan as and when the situation changes
Investments: Since before we started planning in April 2020, the majority amount was in PF and some small component was in PPF and ELSS. The idea was to first build emergency fund and then maximizing equity investments for retirement as a goal.
- For emergency fund, 60% is in savings account (including FD) and 40% is in ICICI – Arbitrage fund direct plan.
- For retirement, asset allocation is as below.
Since we started in April 2020, couldn’t get much benefit of the fall in Equity market as there was no opportunity fund in place. However, the aggressive investment in equity has increased the equity percentage from 44% in March 2022 to 56% in March 2022. The goal is to reach at least 60% equity by mid 2023.
One more thing to note here, though we have put maximum investment in equity this year, due to a sideways market the overall percentage of equity has not yet crossed 60.
As of now, below is the portfolio composition of mutual funds (which constitutes 44% of the retirement corpus) and direct equity (which constitutes 12% of the retirement corpus) as of March 2023.
The plan is to consolidate the ELSS investments into the last four MF once the lock-in is over.
Direct Equity investment is not yet big enough to move the needle. The expectation from direct equity is to create a stable source of dividend income over the years. Currently, dividends are getting reinvested.
Performance:
- The first and the most important parameter of the performance is the retirement corpus. As of March 2021, it was at little less than 1 year’s current expense (accumulated value of all previous year’s investments), as of March 2022, this value was close to 2 years, as of March 2023, this value just crossed 3 years mark.
- Below is the XIRR for equity MFs. Since ELSSs were invested before pandemic and stopped after August 2020, the XIRRs are high but the weightage of the ELSS in the overall portfolio is significantly less as mentioned above. The stock portfolio is at a CAGR of 4.3% roughly.
- The return is significantly reduced compared to last year, thanks to the grimy world outlook
Plan for 2023-24:
- There is only one financial goal which is – to invest the maximum possible through Equity in the retirement fund. Will revisit the asset allocation after 6 months and evaluate the need for rebalancing
- From personal goals perspective, have set up quite a few at the start of this year and tracking their progress at the end of each month. Below is the illustration (the actual numbers are masked)
- X number of days of gym/10000 steps per day in the whole year
- X number of blogs and videos on our travel website and YouTube channel
- Learn a foreign language and a local language
- Not more than X number of days of eating out
- X amount from side hustle
- Build a base for passive income
In the end, I want to thank Pattu sir for the opportunity and the amazing FB group of Asan Ideas For Wealth– my one-stop solution for finance, career related things. Even for a passive member like me, just reading posts, comments, and analyses – has been immensely fulfilling. Wish this group grows bigger and wiser !!
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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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 promoting unbiased, commission-free investment advice.
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