In this edition of the reader story, we meet a 33-year-old planning to retire by 45.
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 and 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 the reader.
About me: First, thank you to Pattu sir for your fantastic service to the Personal finance community. I have been following freefincal.com since May 2020, and it has compounded my financial health (I am sure hundreds of you reading this will echo this statement).
I am a 33-year-old man who is married and working in the IT industry. I was born into a lower-middle-class family and had faced the problems of my parents not having ‘enough’ money. For that reason, amongst many others, I am so proud, grateful and happy to write about my journey towards my first crore (on paper as of now 🙂) and the elevation from lower-middle class to a more affluent status.
Basics: A quick status check on the personal finance basics.
- An emergency fund worth ten months’ expenses
- Term insurance cover of 1 crore.
- Health Insurance:
- Personal family floater insurance of 10 Lakhs base plan and one crore super top-up plan for myself and wife
- Corporate insurance is worth eight lakhs. This covers my wife, me, and my mother.
- CGHS from wife’s government job (We don’t use it as it is useless)
- Travel fund for yearly vacations- maintained through SIPs to arbitrage mutual fund
My Personal Finance Journey: I started my personal finance journey at 18 by opening a bank account in a cooperative bank in my village. I still remember Rs.100 being my first savings bank deposit and Rs.1000 being my first fixed deposit. Having seen all the problems of lack of enough money, I was determined to save every penny I received through gifts, which helped me build my first Rs.1100 corpus.
I started doing small, part-time gigs during the last year of my engineering course and started saving that money through chit funds (obviously 😀) in the co-operative bank. After graduation, I got placed in an MNC through campus recruitment and started working there. I managed to save 30-35% of my take-home salary then and invested (or saved) it again in chit funds.
After some time, I left the job to pursue a master’s and got placed again in a product-based company in Bangalore. One day, a mutual fund distributor (he introduced himself as a financial advisor. It didn’t matter much as I didn’t know a thing about either of them then 😀).
He gave us a nice presentation about mutual funds, inflation, returns, equity etc. Much of the jargon went over my head, but the word inflation caught my attention as I had seen my parents renewing the housing loan thrice it took them four years to construct the house, and the cost of construction went beyond their budget multiple times. Even though I didn’t know about the term ‘inflation’, I knew there is something which makes things costlier.
So I paid attention to his presentation and took his phone number. After a few days of googling, I decided to start investing a part of my salary in mutual funds through that MF distributor. My first ever mutual fund investment was in two ELSS funds (of course, in Regular plans 😀) with a monthly SIP of Rs.5000 each. I didn’t know anything about regular v/s direct plans, lock-in periods in ELSS plans, expense ratio, etc. This was the first turning point in my financial journey.
Like most of the newbie investors, I used to check the returns every day and worried about no sign of real growth (aka ‘two digit’ return). Disappointed, I started researching MF returns myself and noticed the ICICI Pru Value Discovery fund. It was showing a whopping 33% return that time. So, I started an SIP in Value Discovery Fund and selected the Direct plan only because it asked for additional RIA details when Regular was selected first. Still, I didn’t know the difference between Regular and Direct plans.
Two years after my first MF investment, I realized the cost of regular plans and started SIPs with the same ELSS direct plans. Still, I was unaware of the three-year lock-in period. (Believe it or not, only when I tried to redeem everything at once later did I learn that every rupee invested in ELSS should be completed three years before redemption.)
I continued my investments in ELSS MFs and Value discovery funds till May 2020, when I read my first article on freefincal.com. It was the second and, in fact, the most important watershed moment in my personal finance journey. I slowly started understanding the significance of covering the basics, goal-based investing, asset allocation, rebalancing, and most importantly, tracking investments instead of expenses. I also opened an NPS account somewhere in 2018 and stopped the contributions after joining the freefincal community 🙂
Emergency Fund: We have 10x monthly expenses worth of emergency funds kept in a joint savings bank account. This is automatically converted to flexible fixed deposits (MODs), without any restriction on premature closure.
We built this corpus by multiple lump sum contributions from yearly bonuses, salary arrears, monthly left over in our salary accounts and also by contributing 10% of our expenses by the end of every month.
Insurances and Vacations: The corpus for insurance and vacations is built using a SIP for an arbitrage fund.
Long term Financial Goals: Since we don’t have children, my only major financial goal is retirement. My wife is a government employee planning to work till 60. So, we maintain separate portfolios for our retirement goals to make the planning easier. This way, we intend to maintain as much financial autonomy as we can, even post-retirement.
Retirement: I plan to retire from my full-time, corporate-rate race by the age of 45. With that in mind, I currently maintain the following asset allocation:
I use the freefincal robo advisory tool for my calculations and strictly follow the asset allocation suggested by that.
The equity part of my portfolio has the following components:
- ICICI Nifty 50 Index Fund – Weight: 30%, XIRR: 30.73%
- UTI Nifty Next 50 Index Fund – Weight: 29 %, XIRR: 32.26%
- ICICI Balanced Advantage Fund – Weight: 22 %, XIRR: 15.84%
- ICICI Value Discovery Fund – Weight: 8 %, XIRR: 29%
- Direct Equity- Weight: 11 %, XIRR: 23.08%
The debt part of my portfolio has the following components:
- Employee’s Provident Fund (EPF) – Weight: 38 %, XIRR: 8.25%
- SBI Constant Maturity Gilt Fund – Weight: 42 %, XIRR: 8.9%
- Public Provident Fund (PPF) – Weight: 7 %, XIRR: 7.1%
- NPS – Weight: 13 %, XIRR: 9.6%
Note:
- All the mutual funds above are in direct plan.
- I have removed all the regular plans and ELSS funds from my portfolio.
- I am not actively contributing to NPS currently. Just make the minimum annual contribution to keep the account active.
- The direct equity journey was started in 2019 (before the March 2020 crash) and not actively investing there.
The following sections reflect on what helped me, what mistakes I made, and what I learned from them.
What went well:
- High savings rate. Being born in a lower-middle-class family, I have known the value of money since childhood, forcing me to save a significant portion of the money I receive. I am still saving 60-70% of my salary and investing the same. Please don’t misunderstand that I work in IT and have a very high salary. No. I was underpaid for most of my career and started earning decently only last year (The salary was so low that my new employer readily gave me 70% hike when I switched jobs last year😀)
- No one is financially dependent on me as of now. My wife, mother and brother are financially independent. So, what I earn belongs solely to me.
- A minimalist wife who not only earns by herself but also leads a frugal life and encourages me to do the same. This is a game changer as I have seen many families struggling financially because of their (husband’s/wife’s/both) financial indiscipline.
- Relatively early introduction to the world of equity. Even though it was in regular ELSS funds, I will be ever thankful to the mutual fund distributor who helped me to make my first MF investment early in my career. This has helped me to have equity assets in my portfolio and made the asset allocation much easier, when I actually started doing it later.
- Currently I am living in a metro city with good public transport facilities. So I never had to own a vehicle of my own and happily saved the expenses on vehicle purchase, fuel, insurance and maintenance 🙂
What went wrong: While I understand that I have made a few mistakes in my financial journey so far, I am very satisfied and grateful for my achievement overall, and I strongly believe it is a great win for me.
However, if I get a second chance, I would try to do the following:
- “Read all scheme-related information carefully” and do enough research before trusting an MF distributor and investing in regular plans, ELSS funds, NPS, etc.
- Never ‘invest’ my hard-earned in unprofessionally run and politically managed cooperative bank chit funds.
- Instead of buying multiple equity funds, it was enough to stick to index funds (Nifty 50 and Nifty Next 50).
- Instead of worrying about returns/interest rates/taxes, I need to upskill and increase my earning potential.
Conclusion and Future Strategy: The journey so far has been exciting, with a few ups and downs, and I realize that I need to make many more crores before I can be financially independent. But I also understand that the way ahead will be even more difficult as I expect my family to grow bigger, there will be people dependent on my earnings, and expenses will increase.
With all this in mind, I plan to do the following in the medium and longer-term:
- I want to continue saving at least 50-60 % of my salary despite the increase in expenses.
- I need to increase my savings rate by at least 5% every year. I feel this will be difficult as I may not get an equal salary hike every year, but expenses will increase at the same time.
- I need to increase my term cover when I become a father.
- I need to keep building my emergency fund so that it will cover at least one year of essential expenses.
- I need to start a new portfolio for the education of my children and start contributing towards it.
- We have a plan to build a house of our own. I am trying to push it as much as I can until I have enough corpus for my retirement. Eventually, I will need to contribute to this goal as well.
- When I move to my hometown, where public transport facilities are not so great, I will have to buy a car and need to start funding to this goal as well.
Once again, thank you so much Pattu sir and everyone else who shared their financial journey here for guiding and inspiring me.
Reader stories published earlier:
As regular readers may know, we publish a personal financial audit each December – this is the 2022 edition: Portfolio Audit 2022: The Annual Review of My Goal-based Investments. 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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), 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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