Growing Wealth: An engineering approach

This is a guest post by S R Srinivasan, who is one of the most erudite users of freefincal. I had the pleasure of interacting with him twice at the Bangalore investor workshops. He talks about money management and growing wealth to new employees in his company and he kindly agreed to describe his approach and share his slide deck with us. Over to him.


In this write-up, I discuss an  engineering (methodical) approach to personal finance. I introduce the concept as growing wealthy using an engineering approach. I then describe the parts of the approach in some detail. A full presentation that follows this approach can be found below.


I use the title 'Growing Wealth - An Engineering Approach' to describe this approach. In simple terms, it is  my personalized approach to financial planning. I have had the opportunity to consult with many financial advisors. I have also read quite a few articles and books on investing and building financial wealth.  I am usually at ease with the terms used by financial planners and can understand them.  Yet, when I talk to others about financial planning, I  yearn for something that I can relate to. (And yes, I do talk, invited or uninvited, with all and sundry when it comes to financial planning.) As a software professional, it was natural for me to adapt the principles that I use in my professional life. Hence the 'Engineering Approach'.

Before we talk about the approach,  note the use of the word Wealth here. In most situations, we use the words 'rich' and 'wealthy' in the same way.  I use the word in a specific way.  Rich is having 'money' now; it may not last long. Wealthy is having 'resources' to meet all your requirements and wants. Seen this way, the ultimate aim of any financial plan would be to become 'wealthy enough'.

Constituents of the approach

I work for a large company that has a large number of managers. For a few years, I used to teach a course called 'Project Management Fundamentals' to new and aspiring managers. Combining project management and engineering, I came up with the following constituents of the approach:

  • Clear objectives statement - Scope, Schedule, Resources
  • Requirements
  • Design that is consistent with assumptions and constraints
  • Clear approach to risk
  • Sensible implementation
  • Validation, Maintenance

Let us look a bit more into each of them.


Project Objective Statement

Any engineering project has a clear objective statement that clearly spells out these parameters:

  • Scope - What we want to do
  • Schedule - When we want to finish it
  • Resources - What would we use

Scope is the most important parameter in a financial plan. If we conceptualize this well, the goals write themselves. The way I see it, scope is the visualization of 'Being Wealthy' - the kind of life I like to lead. It includes all aspects - family size, lifestyle, support to children, legacy for children, etc. One can want to live like the Ambanis, Warren Buffet, etc. Yet, it is more useful to look around our personal life and spot people who live happy and contended lives.   Schedule is the amount of time that you want to work to achieve the scope. Resources is the means that you would use - for most people it would be their personal earnings.


This is just another word for 'financial goals'.  It is quite easy to take the scope statement and to break it into many types of requirements:

  • Life events  - Marriage, Kids education, Parents, Siblings, etc.  These events create requirements that we have to address, one way or another.
  • Quality of life - Kind of home, kind of vehicle, all the variable lifestyle aspects. These have a lot of variation. My personal take is that we often get misled by how wealthy people live. We look at them after they have become wealthy; but we fail to realize that they led simpler lives before that. And we often don't spot the difference between the rich and wealthy.
  • Dreams and desires - We should realize the importance of these. We can't limit our lives to just the discharge of responsibilities. We should have desires and dreams that are just that - with no constraint of necessity or need.

Of course, the first and unsaid item in the list  is post-retirement.

If we write the requirements in a SMART way, they become financial goals. I give a few examples: a) 3 lakhs by end of 2017 for trip to Bali   b) 10 lakhs by end of 2019 for downpayment for home   c) 'Enough' money to fund child's education in a private engineering college

Assumptions and Constraints

In this approach, this is a catch-all for lots of variables. A good engineering plan would be mindful of the constraints. The constraints can be systemic and/or personal.  Often the plan addresses them by making valid assumptions. In wealth creation, these would be:

  • Money available every month, every year, to create the corpus for the goal
  • The inflation associated with the goal
  • The investment options suitable for the timeframe, and their returns
  •  The time to manage all this, and
  • The discipline

In other words, these are the 'personal' part of personal finance! If you spend some time thinking about these, you would have a much improved plan. But you don't need to spend too much time. Make as set of assumptions  and get started. The financial plans have a long life. So, you get enough time to test the assumptions that you have made and change them as required.

Here is an example. Your goal may need an investment of 10,000 per month over 3 years. It is easy to reduce the investment amount by making an unreasonable assumption on the rate of return. But the testing would soon reveal the bad quality of the assumption. Another example. You could assume a good amount of discipline from you to make investments tied to the market. But if your testing reveals that you did not do any investments in a year, you have to change the assumption.


This is always the fun part. But this is also the part that needs skills and expertise. It is possible to do the design (and implementation) yourselves. The site has loads of material and calculators that you can choose for almost any design question that you would face.  You can also take the help of an advisor. Just ensure that they are indeed independent and don't have conflicts of interest.

In the approach, design comes down to the following steps:

  • Take each requirement/goal
  • Based on the time frame, choose an asset class/avenue
    • 1-3 years – Fixed income or debt instruments, few 'low risk' equities
      • View this as 'savings', rather than 'investing'; don't chase returns
    • 5 years – More equity than debt
    • 10 years – Predominantly equity
    • Your mileage may vary!
  • Estimate the expected return, and then calculate the monthly investment needed
  • The  expected return would be a blended return based on the debt:equity mix that you choose
  • Be sure to factor in inflation for the requirements

Yes, these are the same steps that any book or manual would list!

Addressing the risks - Insurance

Any real life plan would have to account/plan for risks. And it has to be an effective plan and focus on mitigation and contingency.  For financial plans, the risk stems from the resource - which in this case is the individual who is building the wealth. A simple term plan will address the life risk. You can address other risks like health, temporary or permanent loss of income, etc. by appropriate insurances.


A good piece of engineering spends more mindshare on design and less on implementation. Still, implementation is a crucial step.  In the approach, implementation is the actual act of making the investments. The following can be a list of steps:

  • Choose the right asset class/product family
  • Wherever possible, choose the type that saves tax – NSC instead of FD, ELSS instead of mutual fund, PPF instead of long-term debt, etc. etc.
  • For each asset class/product family you have chosen, shortlist the "best-in-class" products
  • Talk to the advisor, talk to the seller of the product, talk to previous buyers, and go buy it!  Just choose 1 or more from your shortlist, and don't try to chase the 'best'
  • It helps if the product can be tracked online
  • If the product requires periodic purchase (most would) set up an auto mechanism, or put it in your calendar

In my view tax planning then becomes an implementation detail. It is not a main requirement, but just a by-product of implementation.


In any engineering, and definitely in electronics and software, the product is only as good as the testing. In financial plan, validation is another term for periodic reviews. During the review you need to compare the performance with expectations and market. You also need to test that your assumptions are holding true, and change them if they are not. And obviously, you need to make the necessary corrections in the implementation for the next period. This implement-validate cycle then repeats for the length of your wealth building timeframe. This part looks simple but has to be practiced with rigour.

A lot of the usual questions that come up regularly can be addressed in validation. An example is the question of  pre-paying home loan vs investing additional amounts. This is just a case of testing your assumptions on compounded positive growth and compounded negative growth. For some years, you can go with the assumption that making extra payments towards your home loan is good. You can later change the assumption based on additional factors that come up.

And that is it. I created my financial plan before formalizing the approach. I find it much easier to describe financial planning to others when I use this approach. I have given informal and semi-formal presentations on this to audiences within my company. (They would primarily be software engineers.) There has been some positive feedback. I welcome your comments/critiques on the approach.

An area that I have not described is on the realization of the wealth - redemption. The typical approach is to shift the corpus to debt 2-3 years before the goal. The goal would then be met by redeeming the debt portfolio. I am more in favour of having a single portfolio for all goals. Of course if you have followed the methodical approach to creating wealth, you would have enough at hand to follow the redemption process that you are comfortable with.  It finally comes down to this statement made by the monk-like person who runs the facebook group Asan Ideas For Wealth:  RIPFPI - Remember, It is your Personal Finance, so Personalize It!


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6 thoughts on “Growing Wealth: An engineering approach

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  2. ajayrajaram

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