My 23 Financial Planning Principles 🤑

Issue #6 : Money management lessons I learned (and followed) from the best books and experts in personal finance and investments.

Effectively financial planning (earning, savings, investing, budgeting, etc) has been an interest and priority of learning for me.

Unfortunately, our education system doesn’t do a very good job teaching these.

So, I read many books on personal finance and investments. 

I also listen to the advice of masters of money like Warren Buffet, John Bogle, and Ray Dalio. 

I work with a Certified Financial Planner to manage my finances and investments. 

Here are 23 principles that I learned and follow to manage my personal finance: 

1. Have an emergency fund in your bank savings account — 3x of your monthly income or 6x of your monthly expenses.

2. Start contributing to your retirement fund as early as you start earning.

3. Try to save and invest at least 20% of your total earnings.

4. Buy expensive stuff if your net worth is 3x the purchase price.

5. Learn the difference between Mutual Funds and ETFs (Exchange Traded Funds).

6. Pay attention to the expense ratio (management fees charged by Mutual Funds and ETFs).

7. Know the current interest rate on short-term and long-term government savings and bonds.

8. Know different types of tax-free and tax-savings investment options in your country.

9. Take advantage [AKA contribute up to the limit] of tax-free or tax-savings funds before investing elsewhere.

10. Know and study the past 20 years of average yearly market return (market index).

11. Know the current and past 10 years of the inflation rate.

12. Learn about Tax-Loss Harvesting. When the market is down, and you have an investment loss, you may save some tax by tax-loss harvesting. 

13. As a passive investor, favor investing in a low-cost index fund (ETFs) instead of stock picking, IPOs, or other high-cost and high-risk investment options.

14. Know your risk tolerance.

15. Work with a fiduciary (they advise only in your best interest) and certified financial planners. (I work with financial planners at Facet Wealth) 

16. Understand the difference between fee-based (my choice) and commission-based financial planners.

17. Avoid any investment product, scheme, or plan that you find difficult to understand.

18. Learn the difference between Direct vs Regular Mutual Funds. (I prefer to invest in Direct MFs) [Mostly applicable in India]

19. Avoid investing in a product that offers insurance and investment combined (I prefer to invest in separate products). 

20. Invest in market or equity only if you plan to stay invested for at least 3 years.

21. Have a Play Fund and contribute a small amount each year (after you have built your emergency fund and retirement fund) if you want to dabble with riskier investments like stock picking, IPOs, crypto, etc.

22. Three things you should know for your retirement planning. 

    • What age do you want to retire?

    • What monthly income do you need at your retirement? (If you can’t predict this then take your current monthly expenses)

    • How much do you need to contribute to your retirement fund every year? (10% of your gross income is good to start with)

23. Learn these 5 things to manage your money effectively:  

    • Budget to Save

    • Learn to Earn 

    • Invest to Grow 

    • Insure to Protect 

    • Plan to Use 

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