Last Updated on September 27, 2023 at 3:52 pm
Each December, I conduct a personal financial audit. I take stock of my financial goals and other aspects of personal finance relevant to me. For the last three years, I have been sharing the gist of such audits at freefincal.
The idea behind doing is this to put some context into the several goal based investing posts that I do, not to brag or show. I think the DIY investing community should share generic information on strategies for mutual benefit. And I have always benefited from reader feedback.
This may help interested readers to conduct one themselves: how to conduct a personal financial audit
Past audits are here: 2015 audit; 2014 audit; 2013 audit.
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I have three long-term goals: Retirement; My son’s education and marriage. Few years ago, audits were something I looked forward to. Since I created an automated mutual fund tracker and integrated goal planning into it, I can audit the goals each time I use it. So the charm has lost a bit 🙂
Also, I have gradually moved away from a focus on returns (next equity return for each goal). Although I use it to review my mutual fund portfolio, I am not too worried about it anymore.
Hence the title of the post: returns do not matter. We can analyse our needs by just looking at the value of the corpus. At the end of that day, that is all that matters, not the XIRR (rate of return). And it way easier to interpret than the XIRR.
Retirement
Asset allocation: ~ 60% Equity mutual funds and ~ 35-37% NPS (mandatory) and rest in PPF.
Net Equity XIRR: About 13% ish. Did not update after this post: The rise and fall of my retirement corpus
Normal retirement is at 65. So more than two decades away.
Achieved financial independence notionally and theoretically.
Notionally, because the corpus is locked in NPS. This is the reason I keep saying: Stay away from Corporate NPS, if You Wish to Retire ASAP!
Theoretically, because my asset allocation is still in accumulation mode. At 60% equity, a severe market crash will vaporise the independence. Naturally, I can protect it but since I like my job, see no need to quit.
Retirement corpus audits require only one number: how long can I be financially independent if I retire today. This has nothing to do with returns obtained so far.
Of course, it depends on post-retirement inflation and return to be obtained relative to that. But that is an estimate and anything between 6-8% should be okay.
Since I am in accumulation mode, the above number will oscillate anywhere betweem 25-30 years. So up to age 65-70. Perhaps that is not enough. Perhaps one should plan until age 90!
Yes, if I want to quit all forms of work. For me, the key aspect is that I do not have to invest anymore for retirement. Just need to manage the accumulated corpus reasonably well. Of course, this assumes that I am not straddled by the perils of unexpected recurring expenses. Will have to play that by the ear.
I never started investing with the aim of early retirement. Just thought I should have a comfortable retirement corpus if I wanted to buy a house (long story!). Soon that desire went away and one fine morning when I checked the numbers, they looked okay. So coffee-can like!
You can download the free E-book: How to retire early in India if you wish to plan for your financial independence. It has links to all relevant calculators.
Son’s Education
He is now about 7. So I will need the money in about 11 years. This year I rebalanced his portfolio and shifted from equity to debt. It is still currently at 60% equity and I will start reducing this in 2017.
In this case again, the returns do not matter. What is the corpus worth today? If my son were to enter college, what kind of education can I afford without a loan?
The answer is: I am comfortable.
Of course the goal here is to be comfortable enough to ask this question: What if our children never had to work! Still not there yet.
Son’s Marriage
I could no longer invest for this goal (and it is important: Should I invest for my child’s marriage?) when my mom fell sick. So I have left it at 100% equity and not looked at it much. Hope I dont need it earlier that I think I do!
The Real Challenge
The real challenge is increasing the investment by about 10% each year. Due to compounding this now looks quite big! Until I receive my pay commission hike, I cannot do this.
Life and Health Insurance
Term plan from LIC (~ 7Y) old; Mediclaim from United.
Tax Planning
The mandatory NPS takes care of this.
Expenses
In my humble opinion, tracking expenses is a waste of time. Read more: How tracking investments instead of expenses changed my life!
I hope 2017 is another dull year personally and financially. No news is good news! And the best way to handle investment volatility is to not look!
Wish you all a merry Christmas! Do consider buying my new book with Subra(money.com). Leave a review at Amazon if you can spare a few minutes.
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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.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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