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21 rules of Managing money and personal finance in the year 2021

#1 – Spend less than you earn 

This may seem obvious but we all live in the EMI era where everything is available either on loan or EMI. Both these options are essentially encouraging you to spend your future income in the present. You need to beware of this when you spend.  People don’t get rich spending every last Rupees. People get rich and amass wealth by saving and investing as much as they can. You need to change your Priority from Income -Expense =Savings to Income-Savings=Expense

#2 – Keep everything as simple as possible 

People are made to believe that money management is complex by Financial Intermediaries in their own wasted interest.  You need to make things simple when it comes to money management. Here are simple actions you must take

1.      For Investing and Premium payments Set online Payment

2.      Buy Term Insurance – stay away from Traditional money back plans and ULIP plans

3.      Buy Family Floater Medical Insurance

4.      Have minimum Mutual Fund Schemes in the portfolio – a retail investor needs one fund from each of the categories with a maximum of 4-5 schemes. Stay away from creating an 8-10 fund portfolio in the name of diversification.

5.      Stay away from fancy mutual fund schemes that you don’t understand

6.      Stay away from credit card, if you are not disciplined.  In this digital payment age, if you need a card, go for Debit Card.

#3 – Don’t ever let your “future self” take care of your current situation

Have you ever taken a decision of spending by right now because you’ll earn more money down the road? That’s a big mistake you’ll always regret for the rest of your life when you realize. Sure, you will earn more in the future, but it’s also more likely that your future self might have less income and you’ll find yourself in a really bad situation. Even if your future self is doing well, there are probably going to be other big expenses that you’ll want to deal with at that time, like buying a house/Children Marriage, etc.

#4 – Focus first on building an emergency fund

Rainy days in life do not come by giving advance notice. Take a recent example of covid and covid induced lockdown and economic effect of the same world over.  You must predict unpredictability in your profession/Job/Business and provide for adequate emergency funds in the unlikely event of a disruption in your income so that you can meet with your living expenses or your business operational expenses during a bad economic period. You should always park such investments into liquid investments vehicles that can give you enough protection from inflation.


#5 – Focus second on eliminating high-interest debt

If you are in debt, before planning investments for your future financial goals, you must first plan to retire from or at least replace your high-interest debt with low-interest debt.  For E.g if you presently have 14% Personal Loan, you should try and repay such high interest-paying loan with low interest paying secured loans such as a top-up loan on housing loan or Gold Loan or Loan against property.

#6 – Focus on saving for retirement

Gone are the days when the next generation will be able to fund the present generation’s retirement. In fact, if you observe properly next generation would hardly have financial success as easily as you had. It’s always prudent to do enough savings and investments for your retirement to remain independent and not be a financial burden on your loved children. As financial Planner, we give the highest priority to retirement financial goal, as you can fund your children higher education using education loan and it will burden him/her for initial 5-7 years but if you are dependent on him/her for your retirement, you will burden him/her for 20-30 years.

#7 – Don’t Invest with an intention to save Tax

We, Indians, are more interested in savings of tax that we forget that investments primary objective is to return from investments and Not just to save tax. Many investor fall victim to investing in insurance policies during Jan-Feb-March as they just buy insurance to save on tax and conveniently forget that returns from an insurance policy, if its traditional endowment one, are less than past 20-year average inflation and if they buy the market-linked policy, they pay high expenses as compared to mutual funds. So always buy investment products for growing your wealth and buy insurance to protect your loved ones’ financial future.  There are pure investment products available in the market that can save tax also.

#8 – Build a budget, just for the process of building it right

Having setting a budget will serve two purposes, it will guide you where you need to spend and where you don’t and secondly if you record your spend and compare the same with the budget, it will also help you to understand your spending habits of spending on non-priority items. Once you know your spending habits that are wrong, you will be able to correct the same. Most of the time budget exercise will make you feel tightening of your hand, but that not true, as budgeting will help you be freer as you will be spending based on your priorities and you will become free from your spendthrift habits.


#9 – Rent unless your total monthly cost of homeownership is lower than renting

This is a debatable issue. If we take a stance from the financial advantage point of view, in India barring few situations, renting will always be financially beneficial than buying, if we consider the total cost of ownership (includes Interest on Housing Loan, Property Tax, Maintenance, etc) vs. ROI of a flat, it makes sense to live in a rented house than buying own and thus EMI saved can be invested in a better return investment Instruments. But from the non-financial perspective, it gives us immense peace of mind if we have our own place to live. So, choose according to your preference.

#10 – Buy cars based on reliability and fuel efficiency

Reliability and Fuel Efficiency is the two most important factors you should think about above all else when it comes to buying a car because it will make an enormous difference in your finances. A reliable and fuel-efficient car will keep your fuel bills and your repair bills low for the entire time that you own it.

#11 – Teach yourself and your children about smart personal finance from day one and be a good example

Unfortunately, in India, personal Finance is neither taught at the school level nor at the college level.  I have seen many disasters in the financial lives of many people due to a lack of knowledge of personal finance. I urge you to invest time and money both to improve your personal financial knowledge and money management skills by attending seminars, workshops, courses. Nowadays many online courses are also available that you can subscribe to improve your personal finance literacy. At the same time, you must ensure that you children became smart about personal finance.

#12 – Don’t touch your retirement if at all possible

I have seen many people making the mistake of withdrawing from retirement corpus to either fund marriages to show off the community or to pay off debts or to make a house down payment. If you can, avoid doing that. Not only do you lose out on years of growth in your finances, it’s also very easy to not adequately refund your retirement after doing this. Tap your retirement if you must, but it should be an avenue of last resort.

#13 – Buy some international investments, too
Diversification will help you minimize your Investment risk and optimize risk-adjusted returns. Apart from Asst Class Diversification into Equity, Debt, Gold, you can look for geographical diversification by investing in mutual fund scheme offering international Funds. This will help to further diversify risk across geography.

#14- When an appliance breaks, buy a new one if the appliance is 10+ years old or the repair would cost more than half the replacement cost. 

When an appliance breaks, buy a new one if the appliance is 10+ years old or the repair would cost more than half the replacement cost. This goes for things like fridges, TVs, Washing machines, etc. Get an estimate on the repair cost. If that cost is 50% or more of the replacement cost, you’re usually wiser to just replace the broken appliance.

#-15- Practice Delayed Gratification 

We are by nature inclined towards instant gratification which means we buy things we felt like buying immediately without thinking about our budget and priorities. This is also referred to as impulse buying. In order to be financially prudent, you must follow delayed gratification which means when you feel like buying something instead of buying immediately differ your purchase by 3 days to a week and check if you still feel like buying, Do you really need that? And if you still felt the need for the same you may go ahead and buy if your budget permits. This simple delayed gratification practice will help you save a lot of money.

#-16 Don’t prepay a low-rate, deductible mortgage. 

Many a time we as Indians are in a hurry to be debt-free. I have seen many investors prepaying home loans bearing 8-9% of Interest and saving a lot of income tax and missing an opportunity to invest the same amount into a portfolio generating 11-12%  returns over a longer period of time. This simple technique would help you to add additional 2-3% returns every year. I always teach that not all debts are bad debts. Home Loan or Education loans are good debts to have as they are offered at very competent rates and the government is offering Tax Breaks for both of the loans so you will be able to save tax as well.


#-17 Evaluate and re-balance your Mutual Funds portfolio

We introduced diversification concept in #13 above. You need to follow asset allocation and periodic rebalancing to optimize the risk-adjusted return from your investment Portfolio. Once a year you need to compare your current portfolio asset allocation with your originally planned asset allocation and if any deviation, you need to rebalance the same to the original allocation. This will by design book profits from relatively outperforming asset class and invest into the relatively underperforming asset class and in turn either reduce risk and/or maximized returns.

#-18. When You Get a Raise, Raise Your Retirement Savings, Too
It is often a situation when you are not able to invest an adequate amount per month that is required to be invested as per you goal-based investment plan. Don’t worry you still have a chance to achieve your financial goals. You just need to increase your SIP/Monthly investments amount every year in proportion to your yearly raise. For E.g if you received a raise of 10% in your salary just increase your Monthly Savings/SIPS by 10%.

#19 Host a Financial Date either with yourself or your partner/family each pay day.

In order to generate wealth, one has to know every step of the way how one is going. I host my financial data with myself every month and use my Excel spreadsheets to track how I am progressing. It’s a great feeling to see those numbers grow over time. Indians also need to learn to discuss their finances with their entire family regularly.

#20 – Cancel your unused memberships and subscriptions

Got a Club or a gym membership you never use? Cancel it. Don’t watch your Netflix subscription? Drop it. Not Reading the magazine that you subscribed for?  Don’t Renew the same. Got Amazon Prime but only order stuff once every month or two? Drop it. Unused subscriptions and memberships do nothing but waste your money month after month.

#21 – Don’t ever go shopping without a grocery list

If you’re ever in a store without some kind of shopping list, you’re probably making a mistake. If you don’t have anything you actually intend to buy there, then you will end up buying things you may not need. If you do intend to buy some things but don’t have a clear plan for it, you’re going to get sucked into impulse buys, which will also drain your wallet. A shopping list keeps you on focus whenever you’re in a store, which cuts down significantly on those impulsive purchases.

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