In this edition of the reader story, we have a most interesting account of Shankar (not his real name), who was burdened with debt for several years. He is now debt free and rapidly building his equity portfolio. This is quite a different journey compared to the earlier edition: My Journey to a Ten Crore Portfolio.
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.
My family/Career Background: Asset Rich- Cash poor situation.
- I honestly don’t know whether I am from a lower-middle-class or upper-middle-class farming family background. You can decide at the end of this section yourself.
- My home/Farm is in a village 4km from a Tire 4 town in south tamil nadu. In 2006, I completed my schooling in my District head quarters 20 Km journey via school bus.
- Mom/Dad looked after the farm they inherited from their respective parents. Maintaining them with Zero returns and some years with negative returns. (With growing Water scarcity, labour scarcity, poor farming techniques, and countless mistakes) I used to help them on the field and marketing on weekends and was above average in studies but not a topper. 😊
- My father got the inherited farmland from his father, along with the huge debt my grandfather had. To give a perspective, if my father had sold the farmland, he could not compensate for the debt. So technically, he was “asset rich with no liquid cash in hand, also with huge debt paying 24% interest borrowed from Relatives”.
- Father is a graduate who was doing multiple side businesses in a tier 4 town in order to compensate for the huge debt he had. and around 2004, he luckily got a job offer from the State govt via employment exchange when he was in his late 40s. So he closed all his small businesses and focused only on the government job. In 2004, By this time, he was in Zero debt. The only source of income for our family was his govt job and cash-burning zero-return farmland.
- After a small business failure, my father sold part of his inherited lands to compensate for the Debt. I never bought any new real estate till I graduated in 2010.
- But all through the years, our parents were able to manage our school fees and college fees (My and my sister’s Engineering) without getting any bank loans.
- As a family, we have never spent any lavish items; even cable TV and colour TV were not present until I completed 10th grade in 2004. Never went to any movies or any tourist places with my family through my school days.
Now you can decide whether I belong to the lower or upper-middle class. I honestly don’t know.
Now let’s drop my family story and jump to my investment journey!
Higher Education and First Job:
- In 2006 I came to Chennai, just like other normal youth, I did my ECE – B.E in Chennai at Tire 3 College on the outskirts of Chennai. I got 3 offers from big IT companies when I passed out in 2010. The IT market was coming out of recession. I just joined the company that called me first and rejected the remaining offers.
- In my nine years of IT job, I jumped 3 companies in India just to increase my package.
- After a long struggle, I got an Onsite opportunity in 2019 Dec.
Welcome to My Investment Journey and Mistakes! 😊
Phase 1: Savings and mistakes when I was In India: from 2010 Oct to 2019 Dec.
Investment Mistake Number 1:
- All my savings from my salary after expenses went to Chit funds in our native to a relative (my father is a partner).
- I never knew what equity investing is; in fact, I was told by my father that the share market is gambling, and I believed it. I had Zero investment knowledge till 2019 Dec. None of my friend circle knows this either.
Investment Mistake Number 2:
- In 2014, I bought a plot in my native (tier-4 town) with all the savings from my chit fund corpus (10 lakh) that I have saved at that time. Till now zero return from this asset. This, I feel, is the mistake number-2. This investment in real estate does not generate any cash flow till now. Not sure what is the current price of this plot. I do not have clarity on how to use this plot till now.
- I realized this as a mistake only after seeing Pattu sir’s video: – 8 reasons to never invest in real estate!
Un-realised mistakes:
- Till now, no other income source except my salary!
- No Term insurance till now.
- medical insurance provided by the company.
- No knowledge of extra VPF and PPF till now. Just the basic deduction was going to the PF account.
If I had the investing knowledge, What could I have done differently and prevented my mistake 1?
- I could have started SIP in Index funds.
- Very high-quality stocks for divided for passive income.
- Could have invested in Debt funds or safer bonds, which might have given some extra liquid cash to reinvest.
- I could have taken term insurance/health insurance for family and parents separately at an early age that could have saved a huge amount of premium
- Increasing my VPF percentage could have improved my debt investment percentage.
Life goes on without realising the above two mistakes: 😊
- I got married in 2015, my first jump to another company in Chennai to compensate for the expense in Chennai. Rented house, traffic life. You guys know this. 😊
- A new arrival to our family in 2016, Our Angel! 😊
- In 2017, I jumped to another company to compensate for the expense again. And savings still go to Chit funds. This time I got some extra savings in hand. Mistake number 3 is waiting at the door.
Investment Mistake Number 3:
- In 2017, Just adjacent to the plot I bought, my father bought another plot with his money and transferred it to my name. (He asked me to build a house to rent it out to generate passive income)
- At the same time, I was thinking of saving some taxes from my salary. While my friends circle from the office were buying apartments in Chennai.
- Peer pressure + lack of investing knowledge + tax saving urge, + father’s suggestion = landed me in Mistake number 3, I started building the house for rent.
- So finally decided to build the house in my native that my father transferred to my name.
- I don’t have any down payment in hand. I pledged my wife’s jewel and used that money as a downpayment for building the house. And rest all as loan.
- The overall cost of the building came to 30 lakhs. Here goes the split roughly. Jewel loan – 5 lakhs. Bank home loan – 16 lakhs
Bank home loan interest – 1 lakh during the course of building, the banks charge the interest. (I got the loans in instalments once the house reaches a stage by stage). Borrowed from Relatives – 6 lakhs. Interests accumulated during this house building time – 2 lakhs.
In addition to that, I added a little bit of saving from my salary that I got while building the house. My parents are not dependent on me; they have enough income to care for their medical and monthly expenses in native.
2018:
- Rent generated by the above house: 15k per month -> roughly 6%. But considering the interest I pay for the above loans and loan EMI. All my savings from the salary and rent goes to repaying the loans and EMIs.
- This is the difficult part of my investing life. Cutting down my expense further in Chennai put more pressure.
- I don’t have track of how much debt and interest I paid back in 2018 and 2019. I Badly wanted more income.
- My parents are not dependent on me; they have enough income for their medical and monthly expenses in my native.
Un-realised mistakes:
- Till now, no other income source except my salary & rent above!
- No Term insurance till now.
- the company provides medical insurance. Family covered in it.
- No extra VPF, PPF till now. Just the basic deduction was going to PF account.
If I had the investing knowledge, What could I have done differently and prevented my mistake 1?
- I could have saved more for the downpayment, and then I could have built the house with less debt. That could have given me peace of mind. And save some amount in paying the extra interest to family and bank.
Transition phase: In 2019 Dec I got an onsite opportunity I badly needed to compensate for my interest and loans.
- Just before my travel to Onsite in 2019, during lunchtime, my office friend opened his Zerodha app mobile and showed me his stocks.
- At this time, I could not understand DEMAT acct, stocks. In fact, I was trying to convince him that Equity investing is gambling. Then somehow, he convinced me to open an acct with Zerodha.
- The first stock that I bought was Yes Bank (LOL). I just bought 1 unit of it. The YES bank was collapsing during this time, and I thought this was the best time to buy this stock. Then I started a couple of mutual funds like direct Blue chip and index funds. But I was not actively making this investment.
After I came to Onsite in 2019 Dec, I had zero knowledge of investing and insurance.
- In February 2019 COVID pandemic started. This phase Is the turning point of my investing journey!
- We were asked to work from home due to covid, so we got some extra time to see some youtube videos. And I found the freefincal youtube suggestion based on my browsing taste.
- During this time, I followed many youtube channels related to investing, like freefincal, subramoney, investment insights and a lot more.
- During this phase, I gained knowledge of the basics of equity investing and mutual funds investing. I learnt the difference between direct and regular mutual funds, expense ratio, dividend, PE ratio, etc.. all basic things from various channels.
- During this time, I learned the importance of the term insurance/medical insurance and all its nuances from the Freefincal website archive.
- Although I was following many youtube channels, freefincal was more logical, and Pattu sirs’ videos are clearer and more convincing. So slowly saw many of his videos in insurance and mutual fund tracking videos. And drew inspiration from his videos.
- I slowly started to close my debts while learning the basics in Parallel.
In 2020:
- In April 2020, I increased my VPF contribution to 100%
- In 2020, my entire saving went to closing the high-interest loans, I closed the jewel loan borrowed from relatives. That was high in interest.
- I pre-payed some of the home loan amounts. Since the interest rates were low, I thought not to prepay this loan.
- I never worry about the taxes any more.
- My only home loan is out of 16 lakhs; it has now been reduced to 8 lakhs. I planned to pay EMI till this actually ends. I will not pre-close this as I am investing in mutual funds.
- Some sign of relief from my past mistakes!
- Again, confusion started, what mutual fund to choose, what term insurance to buy, how much to buy. Since I was following many youtube channels, I was confused about which insurance product to buy and which mutual fund house to buy. Etc.
- There again, the freefincal website came to my rescue; I read a lot of articles on these topics and finally learnt about fee-only advisors. That, too with SEBI registration. This gave me confidence that instead of following some random youtube channels, I chose one person from this list and contacted him.
- Thanks, Pattu sir, for writing a wonderful blog on all the questions a new investor will have in mind. His Blogs related to the importance of Fee-only advisors; the FAQ helped me to understand the eco-system better.
In 2021, After the basic knowledge gathering as explained above. Here is my next action:
- I contacted a financial advisor from the Freefincal list.
- Based on investment advisors’ suggestions, I bought a two crore term cover.
- Group Health insurance for my family
- Group Health insurance for My parents.
- I started to invest in the index fund that Freefincal suggested and Flexi cap fund that the advisor suggested.
- I did not invest in Debt instruments yet, as the market was low in 2020 and 2021. I decided to put the entire amount in Equity only.
- The debt investment portion only used PF, Sukanya Samridi acct for my daughter’s education.
- I kept six months’ expenses as a buffer in my saving bank account.
- The journey has just begun. So I have not tracked the investment yet, as the portfolio is too small. All I focused on was getting out of bad debt.
In 2022:
- I got a better offer while on-site, so I quit the company that gave me onsite.
- I got a chance to redeem by PF balance during this switch. I redeemed all the PF money and pushed them to the Mutual funds as I don’t have any commitment for the amount redeemed.
- I started pumping all my savings into mutual funds and direct stocks.
- Renewed the term insurance and medical insurance.
- I never sold any unit of the mutual fund or direct stock, as all I bought are low-volatility stocks. I don’t want to sell them now.
- I am buying on dips. And SIP into the mutual funds.
- As my portfolio is smaller, I don’t want to do any rebalancing this year.
- 70% equity and 30% cash or cash equivalent approx.
- Now I have a source of liquid cash in the form of rent from the house that I built.
- Dividend from the Direct low volatile stocks. Which I am reinvesting back.
In 2023:
- Still pumping all the savings into mutual funds and direct stocks with low volatility.
- Renewed the term insurance and medical insurance.
- I never sold any unit of the mutual fund or direct stock, as all I bought are low-volatility stocks. I don’t want to sell them now.
- I am buying on dips. And SIP into the mutual funds.
- As my portfolio is smaller, I don’t want to do any rebalancing this year.
- 70% equity and 30% cash or cash equivalent approx.
- Now I have a source of liquid cash in the form of rent from the house that I built.
- Dividend from the Direct low volatile stocks. Which I am reinvesting back.
Current position in Equity as of June 2023:
- Currently, I have 70% in equity and 30% cash or cash equivalent (Including emergency fund) and 2% physical gold.
- In Equity: 70% Direct Equity & 30% mutual funds
- As I am starting just now, I don’t care about rebalancing right now, as the markets are sideways since 2021. My focus is on pumping as much as into this portfolio alone.
Plan for 2024 and beyond:
- Once my Equity portfolio reaches one crore, planning to consult my financial advisor to push the proper balancing on debt and Equity.
- Although my financial advisor suggested investing based on my goals, I don’t have any commitments for the next 11 years. The next big expense is my daughter’s education, which is 11 years from now.
- So as of now, I am only focused on Equity investing in the sideways market until the equity portion reaches one crore.
So, what about the inherited farmland?
My experience can probably guide those working in cities and thinking of selling their inherited land for real estate. Instead of keeping the native farmland barren, they can plant trees and get some monetary benefits. I can write a more detailed FAQ if needed on this topic.
- I planted timber trees in the farmland. These timber trees take less labour, less maintenance cost, zero fertilizer, zero pesticides, and less water.
- I have planted 1000 trees till now, and it has been four years since I planted them.
- These trees can be harvested in 20 years. That is, I have 16 more years. So here are the financials: 1000 trees * 5000 rupees = 50,00,000 rupees.
But this 5000 for the 20-year-old tree is very meagre. You can check the market price with any timber sawmill in your locality. Even the poorest timber tree will cost 10k. Please check this yourself. 😊
- We consciously avoiding to cultivate the labor-intensive crops and water intensive crops and switched to long term tree-based farming.
- This actually saves lot of money being pumped in to the farm, and net return now is ZERO. Which is same earlier as well. But at least now we are not pushing in money into the farm land.
- Due to the tree-based farming, our soil health increases year on year, and water table depletion is reduced.
- Earlier we used to run 3 bore well motors day and night. Now we have reduced to just one bore well.
- Planted all varieties for fruit trees in this past 5 years, so this fruit trees harvest is not for sale, but for family use, and sharing with relatives.
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.
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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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