Posted in Investing, Personal finance, Spending

How to spend a bonus or windfall

You got a bonus or a stimulus check. Celebrations may be in order depending on the amount and how it measures up to your overall financial picture.

There are some of us who will feel entitled towards it and without thinking much, will blow it away on some consumer goods, like a TV, watch or similar purchases.

Photo by Andrea Piacquadio on

It could also be a relief to someone pressed under debt (credit card or personal loans) and would be wise to use it to pay off portion or the whole debt.

Getting debt free feels a lot exhilarating and this is one of the best ways to invest the money, if the person was really under crushing debt.

Photo by Daniela Constantini on

Apart from the above two extremes, there is a third category where most of us will fall into. We have decently managed debt like a home mortgage and other investments and cash flow to sustain ourselves out of any crisis. We also do not suffer from the compulsive spender syndrome as the first category described in this post.

The question is then, how to make best use of the windfall or this lump sum of money?

Photo by Olya Kobruseva on

In this post, I will describe a methodology I typically follow to allocate my year end bonus or stock sale (company stock) proceeds.

  1. List the areas/goals of your finances which are hungry for money. Of course, there will be several goals that are not fully funded yet.
  2. Place the goals on a timeline, for example – buying a house next year, kids going to college in next two years or retirement 5 years away.
  3. Is your retirement account fully funded, like 401k maxed out?
  4. Did you aspire to acquire any particular investment, like an investment property or dividend stocks or even stocks of TESLA, AMAZON etc.?
  5. Do you lack any skill and may be you can take a course, which was expensive to sign up from normal paycheck or monthly budget?
  6. There could be several other goals, but the key is to list them all along with their timelines, the maximum stretch each can afford to go without being funded.
  7. Finally did you want to splurge on something like a new laptop, TV or other gadgets?

If you assign a timeline and importance (for example, maxing out 401k may be more prudent even though the goal is years away) to each goal, it will be easier to see where the money should go.

Here are some basic rules of allocation and it may differ from individual to individual. Normally I follow this priority and it has helped me absorb the money in a healthy way into my life.

  1. Invest a part in your growthI can buy courses, a good book or even sign up to a 1:1 coaching program. Be sure to research the topic and the training well, so that it fits well into your requirements, schedule and budget.
  2. Invest in your responsibilitiesInvest a part in kids’ education (529 plan), own 401k account if not maxed out, taxable accounts, fund towards buying a house etc.
  3. Invest in your lifestyleLifestyle does not mean spending foolishly on things you don’t need. Instead this category is to upgrade your present situation, may be even a little. For example, fix that broken window in your house or get that robot vacuum.
  4. Fulfill your wantsThe last part can be used to buy something that will give you joy, and not necessarily an intelligent purchase.

No matter what the amount is, you can spread it across the above 3-4 categories. These are not hard and fast rules, but in general following this allocation methodology will leave you satisfied about the way you invested and spent the money.

If you have any thoughts or opinions on how you would manage this good-to-have problem, let me know in the comments below.

Posted in Investing, Personal finance

COVID-19 is not attacking your investments

One of the big factors influencing personal finance decisions is the constant stream of news from across the world, be it politics, election, pandemic, dollar losing value etc. In this post, I would like to highlight few points of how all these seemingly useful information is actually nothing but noise.

Recently I was debating with my colleague in India why Gold is not a good investment for long term. It is true that Gold has run up in its price recently, as the world came to a reality about the unprecedented CoronaVirus pandemic.

Gold is a fear based asset. Whenever the experts conclude that the world is going to almost end and businesses are going to fail miserably, they command that Gold is the safest haven to run with your bag of money.

Stocks are overvalued, the government is playing a game by buying shares and artificially keeping markets high, the paper currencies are losing value and many such doomsday predictions are floating around in the market and social media.

And seeing the rush in Gold prices, I must admit I was for a moment sucked into the FOMO (Fear of Missing Out) phenomena.

But then I rationally thought – Wait a minute. What really has changed and what has happened?

It is true that the COVID-19 pandemic has changed the world, possibly irreparably. But will the world go round without any businesses, jobs, spending, economic activity etc?

Every business will try to reinvent itself post-pandemic, and will find new ways to make money. After all, what else are businesses for, if they don’t make money for themselves and shareholders?

Moreover, what is this fear of paper currency being devalued? Will we go back to the gold standard from fiat currency? No, the pandemic itself and the projection of devaluation of paper currencies (including US Dollar) are not going to roll us back to an age that has been left behind years back. In fact, the world may move towards blockchain based financial systems, where value is not stored in a metal or any institution or controlled by any group of influential individuals.

Let us forget about Gold, as it is only one aspect of this fear psychosis.

There is also a huge amount of speculation about the US post-election results and the policies of the next President on social media. I have come across (not even actively searched) many videos claiming to project investment returns and financial setbacks due to the new President’s anticipated tax changes.

Well changes may be coming, or they are always there. But the fact is that investment does not yield results based on shock therapy or abrupt economic changes.

Investments yield best results when you go by a plan and stick to it, no matter what is happening to the world. Essentially the concept of buy-and-hold. And this is not only money investments, but upgrading your skills, acquiring knowledge etc. are also something that are universal and do not depend on abrupt changes in government or the world activity.

The constant flow and waves are more powerful than one time events.

Since last many years I have been investing in the same manner, month after month and with the same asset allocation in low cost Index Funds and other diversified investments.

And with all these noises around, my portfolio had a healthy return and seems blissfully unaware of the fear psychosis gripping the world.

It is true that occasionally an all-stock portfolio will go down in depressing market conditions and can dip even more than 50%, but that is all paper loss till you actually sell and book the loss.

March 2020 – I moved a large fixed income investment into mutual funds, and saw the value tumbling over 30% in the following months, April-May 2020. At the end of the year, as I got over the depressive state and held onto each one of them, the portfolio is sitting at a neat 11% over the value invested in March 2020. This adequately proves that trading stocks and timing the market (based on news and projections) could actually be devastating.

Equity Investment means you are going to ride out such troughs and valleys and come out ahead the other side, typically after 5-10 years.

For the short term cushion, keep enough cash to ride over the difficult times.

One essential comfort zone

Take care, stay safe, wear a mask and stick to your investment plan.

The virus does not attack your investments unless You want to do so.

Photo by CDC on
Posted in Investing, Personal finance

Visualizing Indian Equity Mutual Funds

The human brain perceives better through images.

As they say – A picture is worth a thousand words.

I have been doing data driven personal finance decisions for some time now.

With a combination of Python libraries and data from aggregator websites like (Indian Mutual Funds), I was able to create visuals that gave a new meaning to my decisions.

For example, in selection of mutual funds most people will just go with the ValueResearchOnline’s rating system and pick 4-star or 5-star funds. It is a system to rank the mutual funds based on risk adjusted returns.

Nothing wrong with that, but why not see the data for yourself?

With a bit of analysis, you can project the data yourself to understand long term trends.

Let’s pull the equity funds’ data into a CSV file and load using Python.

VRO dataframe

Note: Some of the exotic fund categories (with fewer specialized funds) like EQ-BANK will be filtered out in below analysis.

For example, here is a box-plot showing 20 Year Returns per Category of Equity Mutual Funds.

20 Yr Returns per Category

It is easy to draw a few quick conclusions from this data for a time horizon of 20 years.

  • EQ-MC (Mid Cap Funds) fared the best with a mean return of 18%
    • 25% of the mid-cap funds returned less than 15%. 
    • 25% of the funds exceeded a return of 20%.
    • The Inter-Quartile Range (50%-75% of the EQ-MC funds) returns are 15-20% as depicted by the solid box.
  • The long tail in the bottom of EQ-MC shows that not all funds will get inter-quartile returns, hence there is a risk to invest only in Mid-cap funds. Many of them performed well below the mean.
  • EQ-THEMATIC funds did not fare that good in comparison to others, as themes are cyclical and it is never a good idea to time the market. We will see below in 10 and 15 years, they perform better in the short term validating their cyclical nature.
  • EQ-LC (Large Cap) and EQ-L&MC (Large & Mid Cap) funds have the least variations from their IQR (see the whiskers on top and bottom of the box), indicating investments in these funds are stable over long term.
  • For large caps, the variations are upward, which means more funds in this category surpass the average or IQR returns than other categories.

Let us now look at the short term of 3 years, to indicate the risk of equity in short term.

3 Yr Returns per Category

As you can see, if you draw a horizontal line on 0% returns :

  • Only EQ-INTL (International Funds) and EQ-LC (Large Cap) have their heads respectfully above the water. 
  • The International Funds are mainly invested in US stocks, and the US stock market has been bullish for few years since 2010.
  • The EQ-LC (Large cap) as we concluded earlier is stable and not so volatile as others, even in the shorter time frame. 
  • See the increased number of outliers (the dots beyond the whiskers) shows the unpredictability of equity fund performance in less than 3 years. 
  • In the 20 year’s plot, there were hardly any outliers seen which indicates that over the long term, the returns across various categories are range-bound and hence more predictable.

Comparatively here are similar plots for 10 Years and 15 Years.

10 Yr Retuns per Category

15 Yr Returns per Category

A few things to observe from the 10 and 15 year plots.

  • The number of outliers (variation in returns of funds) start reducing from 3 to 10 to 15 to 20 years, thus Equity funds should be considered only for a long term portfolio.
  • Different categories will perform differently over time horizons, hence a diversified portfolio should consider funds across categories without too many overlaps.
  • It is futile to chase the best performance, and for a personal portfolio it is good to choose funds within the IQR in each category.
  • If selected carefully, 4-5 funds across categories are enough to form a long term diversified portfolio.

Finally we come to the factor that I call the slow poison – Expense Ratio.

Expenses per category

Lets again draw some observations:

  • EQ-LC has the lowest expense ratio on an average.This is more dragged down due to the Nifty and Sensex Index funds.
  • The EQ-L&MC funds have the highest expenses (~ 2.0%) but in the 20 year range, performs close to EQ-LC (see the 20 year plot earlier). This category may then be best avoided depending on one’s personal time horizon and situation.
  • Same for EQ-THEMATIC with high expense ratios and not so good returns over long term, may be considered as cyclical fad only.
  • EQ-LC, EQ-MLC (multi-cap), EQ-MC and EQ-INTL are the ones worth considering for a diversified long term portfolio, with more allocation towards stable and low cost EQ-LC. 

Lastly let us see how the Expense ratio scatters with respect to the 20 year returns.

20Yr vs Expense

Again we can draw some pretty useful insights in selecting a fund portfolio.

  • If you are happy with 10-12% returns, then there are low cost funds with less than 0.5% expense ratio. These are Index funds and very popular in developed economies, but not yet so much popular in India. 
  • If you want to boast to your friends and family about spectacular returns, pick from the top quartile range of >15% returns but be ready to pay >1.8% expense ratio every year. 
  • There is little value in paying expense ratio over 2.0% as the returns normalize to same as low cost Index funds, as indicated by the density hues (black hexagons).
  • Just be aware that Expense Ratio is paid every year on your portfolio, whether the market goes up or down. That is, your beloved fund manager makes money off you every year, whether you make a profit or loss.
  • You can save around 1% by investing directly with the Mutual Fund house (called Direct option) than through regular channels like brokers, banks. 

This proves that like in US, slowly Index funds will start to make sense over long term in India too. This data corroborates my earlier posts on the same tenets of investing.

Active vs Passive Investing

The 3 dimensions of investment planning


  • I am not a Financial Advisor by profession and the views expressed in this post are my own analysis of the data. 
  • Past performance is not a guarantee of the future. 
  • The data analysis does not take into account other factors like risk/return metrics of funds, and many other financial metrics. 
  • The data used here is confined to only Equity Mutual Funds and similar analysis can be done for Debt, Balanced and Specialty Fund categories too.
  • Readers are encouraged to do their own due diligence on similar lines. The data is sourced from . The veracity of the data lies with the site.
  • There is no one-size-fits-all portfolio and this post is not an investment advice or recommendation. 
  • The data and analysis applies only to the Indian Mutual Fund data as downloaded from . It should not be extrapolated to other countries and markets. 
  • For more detailed views and opinions, visit . I am not an affiliate of the site and do not receive any remuneration or credit. 




Posted in Investing, Personal finance, Savings

The 3 dimensions of investment planning

In the financial world, investments make the world go round. There are numerous articles, strategies, professionals and algorithms working day and night to fight each other for that extra 1% – call it return, risk or fees.

For an average investor or someone just interested in growing his/her wealth to have a good financial life, it is a huge distraction and confusing to say the least.

With the various investment options and opinions, whatever you do seems little and a wrong decision somehow.

Instead of ranting, let me take a few examples:

  1. I had been investing in Index Funds for some time now. Then as my portfolio grew, some well known investment firms started calling me to pitch how they have beaten the market over last 25 years.
  2. The investment choices available today are myriad – bonds, stocks, mutual funds, real estate, gold, commodities and exotic art. Whatever you choose for your portfolio, you will be left wondering if you are doing it right and if you are missing out on the next wave.
  3. The temporary market crash due to Covid-19 and the subsequent surge in Gold for some time now can make you wonder if you should have rushed to buy a ton of Gold.
  4. Each investment then has different tax treatment and tax shelter on how you hold them. Before you reap the benefits, the taxman comes calling for his share.

As an average DIY investor, I see there are 4 dimensions to the problem.

  1. Goals and time horizon
  2. Choice of investment
  3. What you keep (after Tax and Fees)
  4. Making it a habit and automate it

If you view the above aspects as a 4 dimension space, then really it is all about allocating correctly across all the axes.

If you look closely, the dimension 1 and 4 can be squeezed to one called time. The 4th dimension is just an execution process.

So let us define the 3-D space now in a simpler manner.

  1. Time according to life’s goals
  2. Return on Investment and the choices
  3. Cost of investment – taxes and fees

The First D – Time and Goals

Time is one of most important dimension of the investment space.

They say – It is not market timing but time in the market. 

Any investment that you consider has to be first mapped to this dimension.

Let’s say if you cannot predict the exact no. of years, you can still divide the axis into 3 sections. Let us look at some typical life goals that we can map to these 3 sections.

Short Term Requirements (1- 3 years)

  • Emergency Fund
  • Short term goals – buying a house, car etc.
  • Short term obligations – paying taxes, insurance, credit card

Medium Term Requirements (3-10 years)

  • Education Fund for children
  • Debt payoff plan – car loan, personal loan
  • Building savings for buying more assets

Long Term (10-20 years and beyond)

  • Retirement Fund
  • Mortgage payoff and debt-free plan
  • Wealth building and giving

Simple? So far so good.

The Second D – Return and Type

This is where most of the confusion is. As the choices are unlimited, most people ignore the risk-return tradeoff. In the chase for returns, they forget to look for the risk and burn their fingers in wrong kind of investments.

It is always better to set your expectations first, and then map the type of investments.

When you start with the first dimension Time and Goals, it is easier to set the correct return expectations and hence the risk-return tradeoff.

Let us now place our expectation of return on the second axis for each section of the Time axis.

Short Term

  • Emergency Fund
    • It does not matter. This is a fund not for growing your wealth but only for emergencies.
    • Return expectation – 0-2%
  • Short Term goals
    • Depending on what the goal is, the primary objective is still capital safety.
    • Return expectation – 0-2%
  • Short Term Obligations
    • This is for tax payment, annual insurance payments, credit card payment etc.
    • Again we are just saving money rather than investing.
    • Return expectation – 0-2%

Types of investment:

  • Normal Savings account
  • High Yield Online Savings account
  • Money market account

You do not need more than 2-3 savings account mapped to the short term goals. The funds should be completely liquid and accessible in a day or two.

Medium Term

Here we are talking about 3-10 years time horizon.

Since the goals in this bucket may be slightly ambitious and we want to fight the monster called inflation, the return expectation should be slightly higher than inflation but with considerable less risk.

This is also easy to determine:

Types of investment:

This is where we start searching for good mutual funds. For this time horizon and return expectations, the following may fit one’s portfolio

  • Balanced Index Funds which have majority in bonds (60% or more)
  • A good bond fund with duration of 5-7 years.
  • Balanced Equity Funds (aggressive option with 60-70% equity)

Again, here 2-3 funds with returns just beating inflation should be good enough. As you will need the money in less than 10 years, it is better to focus on less risk. 

Long Term

This may be (depending on your age) 10 to 20 years or more.

For such a long term, it is not only inflation that we want to surpass but also several other factors that come into play.

  • Building passive income sources
  • Diversification to contain risk

All of the above can set our return expectations differently.

For example, the retirement draw number can set the expectation in the following manner.

  1. For someone who does not yet have a good corpus, you need to know how much more to save to reach your retirement draw number. Experiment with realistic numbers for return and how much you can save.
  2. If you have already accumulated a significant corpus, then your return expectations may be lower. Instead of going for highest return-risk, you can calculate what return will it take (assuming further regular investments till you work) to reach your passive income goals, or retirement draw number.

There are 3 avenues by which you can reach your goals.

  • Appreciation via Stock/Fund investments – The S&P 500 has returned 9% annually
  • Dividends from stocks and funds – 3-4%
  • Real estate investments can return 7-10% as passive income from rents, REITs etc.

Types of investment:

Here we need aggressive investments (as per return expectations set above) if you have more than 10-15 years of horizon.

  • Low cost S&P 500 like Index Funds and ETFs
  • A High Yield Dividend ETF or Dividend stocks of stable companies
  • REITs or direct rentals

The time horizon itself reduces risk for these aggressive investments.

However you can diversify further in each of the 3 types by going global.

  • Low cost International and Emerging Markets Index Fund and ETF
  • Global REITs

The Third D – Taxes and Fees

Now that we have placed the whole investment picture in two dimension (Time and Return) , we have to make sure that the 3rd dimension does not go too high.

Ideally we would like this dimension to be ZERO for all and remain flat in the 2-D plane. But in real world, the free lunch is a myth and the flat surface will be pulled upwards (or downwards from our perspective) in 3-d by taxes and fees.


If we look at it from the 2-D plane again (Time and Return), there will be different rates of taxes and fees, and our goal should be to minimize them.

This is where the allocation of investments into different types of accounts apply.

  • Short Term
    • There is not much return expectation anyway, so the taxes will be negligible.
    • The fees are important here and should be close to 0.0 in savings account, money market funds etc.
    • The type of investments in this segment will not qualify for long term capital gains, except for short term obligations that are just beyond one year. However rarely do safe investments get special tax treatment in such a short duration.
  • Medium Term
    • In this category, both fees and taxes become important.
    • Due to the 5-7 years horizon, most equity gains will be long term capital gains (20% or less) and get preferential tax treatment.
    • Further to shield from taxes, one can use Roth IRA, 529 plans according to the goals.
  • Long Term
    • As in the medium term, both taxes and fees are important.
    • Being long term, fees paid every year can eat away 20-25% of the corpus in the long term.
    • There are several options in US like 401k, Roth 401k, IRAs, HSA to defer or minimize taxes for the long term. In India, the NPS, PPF, EPF are all good options.
    • In real estate, the depreciation and 1031 exchange are important tax optimization tools.

For taxation matters, it is mandatory to consult an expert professional in the domain.

However for any of the above, we should be choosing only investments that matches our moderate return expectations with very low fees, definitely much less than 1%.

This can be achieved via simple Index Funds and ETFs.

In this graph, the taxes and fees matter (hurt) most in the short term and long term (due to deferred treatment and not exemption).


The Fourth D – Automate and Track

Automate everything and let it run like a bullet train.

If you need help on how to set up your finances, here is a link.

How to manage your cash flow



Posted in Investing, Personal finance

Active vs Passive Investing

There is a continuous debate that goes on in the context of investing through mutual funds.

Should I choose funds which are actively managed or choose Index funds which simply mirrors an index?

Some experts are strongly opinionated in favor of Index funds, whereas investment firms will always tout active investing for obvious reasons.

So what should we as investors choose?

Let’s see the different reasons why Index Funds are better choice for most investors.

  • Index Funds simply cost much lesser yet gives you the returns of the market.
  • Index Funds provide instant diversification from flavors such as Total market Index to specific themes and international market indices.
  • Index Funds do not have the need to reward performance and compete with other funds.
  • Index Funds do not need to trade very often, thus saving unnecessary tax liability due to capital gains.
  • Index Funds are simple to understand and follow.

So in an efficient market like the US, where information about good companies is widely available, beating the benchmark indices is not easy for fund managers. There are star fund managers who may have done that, but the percentage is very less, typically < 5%.

The simplest and most convenient in the US is the proverbial Bogleheads’ Three fund portfolio.

However the story may be different in other parts of the world, for example, emerging markets like India.

There are evidences of active fund management overtaking Index returns and in the short to medium term, even with the high costs of management, beat the index fund often.

However this is slowly changing and in recent years, the Index Fund is tilting to be the better choice for long term investors.

With more institutional money flowing into Index Funds as well, Fund managers will find it difficult to beat the index returns and the market efficiency will move towards that of developed markets like the US. To quote an article, it clearly shows the trend.

Over the last couple of years, many investors have increased exposure to index funds as returns from several categories of actively-managed funds failed to beat the Nifty 50 returns. In the past one year, the Nifty 50 has returned 12.51%.


Thus no matter where you are investing, Index Funds are the simplest and the most efficient choice for a portfolio.

Index fund investing is like sticking to the basics, just invest for a very long term and you need not worry about the noise of the investment world.

composition of different conchs on beige table
Photo by Karolina Grabowska on

Photo by Karolina Grabowska on

Posted in Budgeting, Personal finance, Savings

It is not a good IDEA

There are four aspects of personal finance that we deal with every month, unlike taxes and insurance which are typically annual affairs.

  • Income
  • Debt
  • Expense
  • Asset

Thus the I, D, E, A is what one deals with every month – month after month in that same order.

Typically a household finance (or monthly cash flow) goes like this:

Income (I) -> Pay Debt (D) -> Pay Bills (E) -> If left over, invest in assets (A)

The problem is that the IDEA is wrong. It will never make one financially independent as the Asset part is only an afterthought, and mostly never happens.

This requires a correction in perspective and is much touted by financial advisors as Pay Yourself First, where A should come before D and E.

So the IDEAL sequence is I,A,D,E,L.

Income (I) -> Pay for Assets (A) -> Pay Debt (D) -> Pay Bills (E) -> If Left over (L), have fun. 

The last part if consistently found to generate surplus, can also be adjusted for subsequent months to increase the “Pay for Assets (A)”.

How does one do this course correction? Here is one simple technique.

  • You know how much Income comes in. 
  • Decide a percentage (start a bit aggressive, like 20%) to set aside for A. 
  • But do not invest yet, just set it aside to another savings account. 
  • Pay your debts (D).
  • Pay your bills and monthly expenses (E).
  • If shortfall, pull a bit from the A saved aside. 
  • If not, good news. Invest the 20% into assets (A) and enjoy any surplus (L). 

This habit if done over 3-6 months, will build the automatic flow of savings and investment.

The sequence described above has the following automatic advantages.

  • It starts with an aggressive savings goal of 20%. 
  • As one sees the expenses budget drying up towards end of the month, it encourages one to cut unnecessary spending. 
  • The savings is still saved aside till the end of the month, so can be pulled in if needed. 
  • Pulling in the savings every month however has a mental resistance, hence should be difficult to do month after month. 
  • To make it more difficult, put the A into another bank so that the transfer will take some time and effort to execute. 
  • As one adjusts to a comfortable level of savings (A) percentage, it brings in awareness of how the budget and cash flow works. 

The IDEA is not so bad after all, you just need to fit it in the right sequence to work.

  • No coupon cutting
  • No writing down daily expenses
  • Automatic resistance to debt
  • Steady build up of assets. 

think outside of the box
Photo by Kaboompics .com on



Posted in Investing, Liabilities and Debt, Personal finance, Savings

The Five ways to SIP

SIPIn India, the mutual fund industry has popularized this term for drip investing, dollar cost averaging or similar. The full form is “Systematic Investment Plan” and allows normal people to invest in Mutual Funds gradually and is proven to build wealth over a long time. 

For me, there is a bigger SIP in Personal Finance – Sleep in Peace. 

It may sound like RIP – but lets keep life going strong in these trying times. We will do another article on that, and in personal finance terms we will call it Retire in Peace.

SIP is a concept that is important throughout your earning and retired life, and defines a way you can manage your Personal Finance to effectively “Sleep in Peace” every night.

As we know with the current COVID-19 situation, many people are losing sleep over their financial situation.

While some can still be corrected with discipline, those following the basic principles of SIP will be unaffected by such pandemics and sail through it.

The Five components of a SIP method

1. Emergency Fund – The sleep in peace fund

The Emergency Fund is the first of SIP rules. It can be called the Sleep In Peace Fund too.

In the current situation where everything is uncertain from jobs to ability of paying mortgages and bills to medical situations, there cannot be a better cushion than possessing an emergency fund.

People who have not been able to build this fund, are now feeling the brunt of their careless handling of personal finances.

One essential comfort zone

2. No Debt – borrower is slave to the lender (there is no good debt)

In US, due to low interest rates on some loans like mortgage and auto-loans, some experts justify using leverage to build your wealth. While that may sound smart in good times, in trying times like now even a so called good debt can nosedive to a bad debt.

For example, the government is now directing banks to suspend mortgage payments (for a short period, of course), giving stimulus to real estate investors and trying to bail out or let leveraged people and businesses go down.

So greed and over-smartness with debt are now taking the sleep away from people who have bought and financed huge houses, expensive cars, invested into rental properties with no-money-down. Here are 3 situations where not having an emergency fund and being over leveraged, is disastrous now.

  • You spend more than 30% of your income in mortgage payment. If you lose your income, even the emergency fund will quickly run out paying the mortgage.
  • You bought an expensive car with bank financing and very low down payment. The auto-loans will not get any relief from Government, and your car may be repossessed in case you fail to make the payments. Also the payments could have been used in more protective ways, if the car was bought with cash in the first place.
  • You invested in rental properties with low down payment (< 20%). What happens now when many tenants are refusing to pay rent due to financial hardship or even just taking advantage of the situation (evictions are deferred now). You still need to pay the bank their share of interest and principal.

The universal truth about Dave Ramsey’s 7 baby steps

3. Do the real SIP – invest in a disciplined way

Now we come to investments and the real SIP (Systematic Investment Plan).

This process addresses two damaging financial behaviors – fear and greed.

I will not rant about the philosophy behind SIP or DRIP investing, it is pretty well known and over-emphasized in investment circles.

The advice from the legendary investor Warren Buffet applies now more than ever.

Be fearful when others are greedy, and be greedy when others are fearful. 

However in the Sleep In Peace method – be neither, irrespective of what others are doing. 

Keep investing with a plan. I have rearranged my India portfolio recently (just before the market crash) and apparently could have done better.

  • In a zeal to restructure my asset allocation, I invested a large part held in cash into the equity markets in Jan 2020. Little did I know, the markets would come crashing down in another month or two.
  • However I was not overzealous on Equity. I kept a larger part in simple fixed deposit (bank CD), so as not to go overweight in one asset class, Equity. 
  • The current market situation does not affect my peace, since the money I invested into equity markets is planned to be held for a long time (possibly till I retire). 
  • I could have done better if I remained patient and deployed it in smaller chunks over several months  – the real SIP. 

So that’s from a recent personal experience –

If you want to Sleep In Peace, invest with SIP – the systematic investment plan. 

Know yourself and your investments

4. Define and invest in your goals

No matter what is happening in the world, nothing can derail you in personal finance if you manage your finances based on your goals.

Every person has life goals like buying a house, opening a business, travelling the world, educating your children and RIP (Retire in Peace).

If you allocate your money to the various goals and keep adding to the corpus month after month in your earning years, then in trying times such as now – you have nothing to fear. Some of your goals are funded and some are in the process of getting built-up.

Just continue doing what you were doing.

The worst case scenario can be that one or two goals may need to be postponed. For example, if you were trying to retire early and lost your job or income, you may have to work longer for a few years more. But that does not completely cripple you or force you to liquidate your retirement funds.

A simple method of asset allocation

5. Pay your taxes and file your return on time

Taxes and death are certain – everything else is uncertain. 

There is no way to avoid taxes (except the legal ways to reduce or defer it – consult a CPA) and hence every personal finance system has to take into account – taxes. Not paying your due taxes and trying to be over smart, can really take your sleep away.

Whatever it takes, plan for your taxes throughout the year and pay the legitimate share to Sleep In Peace. 

In the US, Internal Revenue Service and in India, the Income Tax Department are both quite aggressive in following up with cover-ups, non-payment and mistakes. And for working professionals like me, who has to deal with both – there is no other way than honesty, prompt action and discipline in keeping track of your tax liabilities and payment obligations.

Keep your documentation up-to-date and file away returns on time to avoid major headaches.

Five components of a personal finance system

Conclusion – Ride the wave and learn something new

While this is the time for great financial worries and the clouds of a multi-year recession looming over us, there could not have been a better time for us to introspect and re-organize.

This is the time to take a hard look at your financial and other priorities in life. Locked down inside our homes, with more family time and me-only time – when is a better time to introspect and find your real dreams? 

When the world was open and running, the rush of the morning and the fatigue of the evening left little for us to think beyond the next day.

If you want to sleep in peace when all this is over, maximize this opportunity and start something new.

I am working on starting a financial coaching business where I can help people with their finances globally. What better time to serve the world than now and next few years? 

Who moved my cheese? How to deal with changes in financial plans

sticky notes on board
Photo by Polina Zimmerman on

Posted in Budgeting, Investing, Liabilities and Debt, Personal finance, Savings, Spending

How to manage your cash flow

A company which is listed in the stock market has to publish 3 essential financial statements.

  • The balance sheet
  • The profit and loss statement
  • The cash flow statement

Briefly, the balance sheet shows the health of the company at the reported time, profit and loss statement shows how much profit the company is making after all expenses and taxes, and the cash flow shows how the company is generating the cash from its operations as well as investments.

Free Cash Flow (FCF) is an important metric that is used by investors to evaluate the real worth of a company. 

In personal finance, while balance sheet (Your net worth) and profit and loss (how much you are making and spending) are important, managing the cash flow is key to achieve your financial goals.

In this blog, we will talk about how to manage your cash flow – no matter whether you earn a lot or earn an average paycheck.

Most people do not manage their cash flow, forget about doing a budget or any other conscious form of tracking.

At the end of the month or year, we wonder where all the money earned went.

Conventional ways of managing cash flow

There are several techniques Personal Finance experts have championed time and again.

  1. Do a budget, track every dollar. 
  2. Create an envelop for groceries, utilities, fun etc.
  3. Use separate accounts. 
  4. New automated solutions like Stash, Digit etc. 

All of these are good methods, but the problem is sticking to the discipline of maintaining it day after day, month after month.

Isn’t that boring and worrying at the same time? Few issues with these approaches are:

  • Writing down expenses every day
  • Stuffing that envelop and counting the money every time before spending
  • Keeping track of multiple accounts
  • Not knowing how much the AI driven savings app is going to deduct next month

So is there a simpler and better way?

Just like most posts in this blog, I seek simplicity and automation.

The simpler way of managing your cash flow

There are 4 goals to managing the cash flow every month.

  • Invest for the future
  • Save for the short term
  • Pay your bills 
  • Spend the rest

In fact, any wind-fall is also a one time cash flow, and can be fit into the same framework.  Lets say you got a bonus of $1000, for example, the Govt is sending a check to all Americans. And if you want to keep it simple, allocate 25% to all the 4 goals.

  • Invest $250 in your long term (retirement, child education) plans. The market is down and you can invest $250 in a mutual fund or an ETF. 
  • Save $250 for any short term goals that you have. It could be added to your monthly savings goals, towards anything like vacation, buying that new phone, or simply emergency fund. 
  • If you have consumer debt, why not allocate some to pay it off? Use $250 to pay off the highest interest or smallest balance credit card. 
  • Now you have $250 to splurge on. Buy that favorite book, order the special meal or decorate your home. 

But how do we automate and manage the cash flow every month?

  • Invest – Direct deposit investments. In fact most employers have systems to auto-deposit 401-k investments or direct deposit to your chosen brokerage firm. 
  • Save – Auto transfer to a savings account from your checking account. 
  • Pay Bills – Setup auto-pay with your credit card or debit card. Set the bill payments mostly towards beginning of the month. 
  • Spend – Use your debit card to spend – it will tell you when the money runs out. 

Once setup, the only stress you have is the last bullet, where you have to make your spending within the limits, or rather the residue after all obligations are set aside or paid off.

How it can snowball into Financial Freedom

As you get consistent with stashing money away for investing and savings, those may generate additional cash flow or assets which will come back to bolster the spending budget.

Thus cash flow is a virtuous cycle once set up the correct way. Lets take some initials and approach this from a math perspective.

  • J – Job Income
  • R – Retirement
  • I – Investment
  • S – Savings
  • B – Bills
  • E – Expense
  • P – Portfolio Income

J + P = R + I + S + B + E

I can produce P in terms of interest, dividend or rental income.

silver and gold coins

In the wealth accumulation years, the goal should be to increase J, so that I can be increased, which when invested can increase P. P is added to J and a part reinvested, saved or used.

As you reinvest P, it will generate more P till at a point, J becomes less and less important. 

This cash flow situation is called Financial Freedom.


We just presented a simple and fully automated cash flow management system for personal finances. It does not take much discipline and will power to stick to it, once correctly setup.

This is also explained in more detail in the post The SAFE plan – Simple, Automated, Flexible and Efficient .

Photo by Pixabay on

woman standing on cliff
Photo by Min An on



Posted in Investing, Personal finance, Savings

A simple method of asset allocation

As I started to write this post, I decided not to rant about the Corona Virus and its effects anymore. The last two posts were dedicated to the topic and frankly it is becoming a little bit weary to add to all the deluge of information and opinions on it.

Let’s look at the current situation as nothing unexpected, at least financially. Being a financial blog, let us generalize this to another black swan event, and not worry about the statistics of no. of confirmed cases vs. deaths etc.

What is a Black Swan event?

A quick Google search yields the following:

An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict. This term was popularized by Nassim Nicholas Taleb’s book “The Black Swan: The Impact of the Highly Improbable.”

Lets leave it to that and consider we are in the midst of one such situation.

The keyword in the above definition is “would be extremely difficult to predict”. 

No matter what financial experts say about the markets, about investments, using sophisticated algorithms to trade stocks, the fact remains that such events are not predictable by even the multi-PhDs of Finance.

In the beginning of 2020, most of us did not know that a black swan event is so much closer, although experts have been predicting recessionary clouds for last 2 years or more.

The effect of such an event is the havoc it can do to your savings and investments. Yes savings too, as we don’t know which banks or financial institutions will go under the water, and whether government stimulus can rescue them.

It may be a rare event so far, or some rescued in 2008 but we cannot guarantee with every black swan event. Just in Feb 2020 (when it was still normal business), a very large private bank in India went bust taking with it hundreds of thousands of dollars worth of deposits of very normal people. Ironically the bank was named “Yes” bank.

Similarly by end of March 2020, the stock and mutual fund portfolios are down 20%-50% depending on how much risky the portfolio was to begin with.

The only respite from all of this is to maintain a good asset allocation as each investment avenue has its own risks. Some of the typical risks are:

  1. Cash – Banks going down and Government struggling to insure the deposits.
  2. Stocks – Markets tumbling for an extended period of time due to economic fears.
  3. Bonds – Risk of default as even good companies’ bonds can turn into junk debt very quickly. Lot of mutual funds in India were invested into Yes Bank bonds. Long term bonds can also run into interest rate risk.
  4. Real Estate – Somewhat resilient but affected by vacancy, interest rates, unemployment.

If your finances are severely affected by this storm, how do you achieve a good asset allocation once the clouds are gone and the sun is shining again on the stock market?

KISS – Keep it simple, stupid

Its not overly complicated although some financial experts make it so. Let’s say I want to hold 25% each of the 4 asset classes and distribute my assets accordingly.

Here is a step by step method on how to achieve this. It is better done in an Excel sheet as the calculations can be automated and even graphs can be plotted, although equal allocation is easy to visualize anyway.

  • List down all your assets into one column which comprises your Net worth including your home and any other property you own.
  • Now in a second column, list the value corresponding to the asset. Be conservative, do not add any speculative value.
    • For your home, just take the equity value that you have.
    • For stocks or mutual funds, take the present value.
    • For any bond investment, take the invested value or the expected maturity value (if the term is not too long).
  • Now add 4 columns for the asset classes.
  • The chart should start to look like this. Here is a simple example of a $100,000 Net worth.

Asset Allocation Table 1

  • Now based on the asset class for each, fill the right side columns in the right proportions. For example the mutual funds  may consist of equity funds, bond funds and REIT funds in equal proportions. For each mutual fund, a look at the fund report will reveal the proportions of these asset classes that it invests in.
  • Fundrise is just an example of a private REIT that is considered real estate asset class but in paper form. It is only for illustration and I am not an affiliate of the investment fund.
  • Once you allocate the numbers to the 4 asset classes and add up each column, it will become visible how your asset allocation is skewed.Asset Allocation Table 2


  • A visual inspection of the numbers reveals that this portfolio is heavily skewed towards Real Estate due to the largest investment in the Home. This is true for most people, as their largest investment is their home.
  • A more vivid depiction of this can be drawn using the Excel chart.

Asset Allocation Table 3

  • How to balance it? There is no ideal asset allocation as it depends entirely on the person’s situation, age, risk appetite, goals and many other factors. It is only after this simple analysis that one should approach a financial coach or investment adviser.
  • For example, if the person (who’s portfolio we have just analyzed) is not happy with the Real Estate skew, he can allocate future investments more towards Equity or Bonds (or even Cash), than buying more real estate or paying down his mortgage aggressively.
  • Being overweight in Home Equity can mean house poor and the person will find it difficult to raise funds or access cash in times of emergency or other life goals.


The beauty of this asset allocation method is that in a simple exercise which takes less than 10 mins and one sheet of Excel, you can look at your entire financial picture.

  1. It gives you a quick overview of your Net worth.
  2. It gives you the current asset allocation you have.
  3. It tells you where your financial situation is vulnerable to market, liquidity or economic risks.
  4. It tells you what action you need to take (whether to sell some or boost up another) regarding the various asset classes.
  5. It directs how your future investments should be structured.

The value of this exercise is immense and a good asset allocation can let you sleep in peace when the entire world is savaged by another Black Swan event.

photo of building during daytime
Photo by Matthew DeVries on