DIY Personal Finance Cheatsheet: How long does each step take?

Go to a bank or post office and you can locate a board that lists typical transaction times. Here is how long each basic step in financial planning will take.

Assumptions:

• You know that equity investing is necessary to combat inflation.
• You recognise the bad investments in your folio and have decided what to do about them. If not, spend a couple of hours over a weekend to sort this out.
• You dont have any debt except a home-loan. If you do, perform steps 1-8 below, clear your debt and then resume.
• You do not ask for product solutions in Asan Ideas for Wealth. Do that and the decision-making time will at least triple.

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1) Scrounge around for extra cash to set up an emergency fund. – 10 mins  to think about it and less than a few hours to implement it.

2) Follow it up by allocating at least 10% of your salary each month to this emergency fund until it grows to a decent size – 10 mins  to automate this process

3) Use insurance calculator for the young  if you are an unmarried earner or this comprehensive child planner if you have kids, to find out how much life insurance you need. This would take 20-30 mins

4) Read How to Buy a Term Life Insurance Policy (20 mins)

5) Shortlist life insurers (do not ask anyone’s opinion). This is personal finance). Find out by either using their online calculators or by contacting them, how much insurance you will get for your profile. If this is more than what you need, you can always reduce. If this is less, return to step (3) and work out how best this sum insured can be utilized. (over 2-3 days since there is correspondence involved. Not more than 30 mins a day)

6) Apply for the policy, take the medical and wait. A single policy is all that you need. If the premium is loaded, you will need to take a call on the sum insured. (over 2-3 days)

7) Read How to Buy a Health Insurance Policy (20 mins)

8) Shortlist health insurers (do not ask anyone’s opinion. This is personal finance). Take a call. Max 2 weekends:  One hour in one weekend  to shortlist and another hour the next weekend to decide. You have the week in between to mull over.

9) Use the financial plan creator to  see where you stand (one hour). Take another hour to introspect. Will your income grow as much as you dream? How are you going to balance your needs and wants.  This is list issues. Solutions can be obtained over a course of time.

10) Decide asset allocation (% in equity and % in debt) for each of your financial goals.  A simple cheat sheet to get you started.  Modify after experience.

• Annual goals and goals less than 5Y away: no equity (choose simple safe instruments immediately)
• Goal between 5-10Y: 20-30% equity  (conservative,5-6Y); 60-70% equity (aggressive, choose for 9,10Y ); above that (madness)
• Goal above 10Y: Max 60%-70% equity.

Use this as a thumb rule to get started on goal-based asset allocation. You can always fine tune later.

Spend a few hours over a week and then decide.

11) Decide on investment strategy: one portfolio for all long-term goals or separate. Either will work. Just that you need to think about it. Read moreabout this if you like. Spend a weekend deciding, but not more

12) How will the equity folio be assembled ? Same for debt. Aim for minimal no of investments. Too many ways to do this.  Best to keep it simple:

One large cap fund and one mid and small-cap fund with no overlap

Debt folio: Use PPF for goals 15 financial years away. Use short-term debt funds  for other goals.

Suggest you start with this. You can read more and add more later!

13) Choose instruments.  With the guides available here(links on top right), it should take you 20 mins to short-list equity funds and 2o mins for debt funds. Worry about tax planning only now. It should be integrated with goal-planning.

14) Begin investing (over the course of 3-4 weeks) in direct mutual funds of course!

14) Monitor only monthly investment and not fund performance each month (10-2o mins)

15) Monitor fund performance after a few years. I have a post on this. You can read it when you find the time. There is no flaming hurry.

Monitor only every few months (10-20 mins)

That is all there is to it. If needed add an accident insurance (same time as health insurance).

To summarize:

• 1 weekend for setting up emergency fund
• 2 weekends for obtaining life insurance
• 2 weekends for obtaining health insurance
• 1 weekend to access financial goals
• 1 week to decide asset allocation (few hours only)
• 1 week to decide investment strategy and assemble folio (few hours only)
• 1 weekend to choose instruments for goals with tax planning integrated into these goals.
• 1 month to start and complete all investments.
• All of the above can be completed in under 3 months or at best 6 months.  Recognise that the total amount of hours you will spend will be quite small.  When I say weekend, I dont mean the entire weekend – just an hour or so.

Then monthly monitoring of investments each week. Let me know if I missed any activity.

Here is a list of ‘how-to’ articles. If you want more clarity on any of the above activities, let me know.

Review growth after few years. The review process will only take an hour.

Performing these tasks requires only inclination. Confidence will help, but it can be developed. Even those with no confidence and (self-proclaimed) low grasping skills can manage to complete this by spending a few hours over a year. That is no small achievement.

The DIY investor can learn and implement, step by step. He/she can work and enjoy life as usual. The effort associated with DIY will not hamper their activities in any way.

Take it one step at a time and see where it goes. That is all that can be said. The rest is up to the individual.

DIY money management is not for everyone.  Those who do have the inclination or time to pull this off can consult a fee-only financial planner, pay for financial advice, but insist on direct mutual fund plans

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Kolkata DIY Investor Workshop May 28th, 2017

Register for the Kolkata DIY Investor Workshop May 28th, 2017

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