"Let's Talk Money" by @monikahalan teaches you everything that you need to learn about personal finance - cash flow, health insurance, term insurance, emergency fund, different investment instruments, and retirement planning. Let's understand each one in this short thread...
2/n: Think of your financial life as a money box. The money box fills in your working–earning years with income; you use the money to pay for living costs, fees, rent, EMIs, taxes, vacations, and a whole long list of what it takes to live the Indian urban mass affluent life.
3/n: A good money box is one that allows you to streamline your cash flows. It builds in safety nets for preserving your savings in the face of an emergency – typically a medical emergency, a job loss, or the death of a salary-earning family member.
4/n: You have a three-account system that separates your income, spending, and savings. Your spending on living costs is no more than 45–50%, your EMI payouts are no more than 25–30%, and your savings are at least 15–20% of your take-home income.
5/n: Emergency Fund: You have six months’ to two years’ living costs in an emergency fund through fixed deposits or very safe debt funds.
6/n: Health Insurance: Along with your work cover, you have your own family floater. This is important because - One, when you are faced with a change in circumstances (losing a job). Two, your retirement. Along with the farewell party, you bid farewell to your medical cover.
7/n: Life Insurance: You need a life insurance cover for only one reason-to protect your family’s financial health if you die an untimely death. Buy a pure term insurance plan, buy it online to remove agent commission, and your sum assured is 15-20 times your annual expenditure.
8/n: Investment: Each financial product has a certain time period over which it works best. A product that is very safe in the long run becomes very risky in the short term. And a product that works in the short term becomes a drag on returns if you hold it too long...
9/n: Investment: Commit to an investment plan. Write down your near-term, medium-term, and long-term goals and put a monetary value to these goals.
10/n: Asset Allocation: There are mainly 3 asset classes - Debt, Equity, and Real Assets. Debts are financial products that are based on borrowing. Equity is ownership of a business and the risk that it brings. Real assets are those that can be physically seen...
11/n: Debt: Debt instruments are products that give you an assured return – like bank FD, tax-free bond, or PPF. The core of the product is a loan. Debt products are good for stability but not for growth. your debt allocation is equal to your age (30% at age 30).
12/n: Gold: Ideally gold is good as a hedge against inflation. Not more than 5–10% of your total portfolio should go into gold. Your options to buy gold are coins, bars, gold ETFs, and SGBs issued by GOI instead of jewellery as straight 30% goes towards making charges.
13/n: Real Estate: It is a horrible investment that has lots of costs, which people forget to add to the profit maths. It is illiquid – you can’t sell it in a hurry. It needs periodic investments for maintenance. You own one house as the roof over your head and no more.
14/n: Equity: Equity cooks over time and you need at least 7 to 10 years of patience to see returns. Understand that you will not double your money overnight but will get a return that is between 12–15% a year...
16/n: Mutual Funds: Mutual funds are the best way to give your money an equity exposure. A mutual fund is a way to pool the money of a large number of small investors and hand it over to experts to manage it...
16/n: Mutual Funds: You can buy 3 kinds of asset classes through mutual funds – Debt, Gold, and Equity. If you don’t have the ability to choose funds, you invest through index funds or ETFs. Churning your mutual fund portfolio benefits the seller and not you.
17/n: Retirement: You are financially free when you don’t need to work to pay your bills. You have enough assets that generate enough income today and for the rest of your life. The idea of financial freedom is to be free of any strings...
18/n: Retirement: You need to save about 10–15% of your take-home salary towards your retirement. i.e., at age thirty, if you have zero retirement money, you start saving 30% of your post-tax income; at age forty, 40%; and at age fifty, 80% of your income.
19/n: Will It: Your money box is half done till you have made a will. Nominations are not enough. Nomination does not mean that the nominees get the assets but rather a caretaker of the asset, somebody to whom the money flows to for safekeeping till the legal heirs stakes claim.
20/20: Hope this thread helps you to streamline your finances. If you like it, please read the book in detail and share it with your loved ones. I wish I read it earlier. Thank you.
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