My financial journey was directionless until age 40: this is how I made up for lost time

Published: November 12, 2021 at 7:00 am

In this edition of the reader story, we meet Mr H (name withheld on request), who explains that it is better later than never to get your finances back on track and start goal-based investing.

About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers.  Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.

Opinions published in reader stories need not represent the views of freefincal or its editors.  We must appreciate multiple solutions to the money management puzzle and be empathetic to diverse views. To preserve the tone and emotions of the writer, articles are typically not checked for grammar unless necessary to convey the right meaning.

If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.

Please note: We welcome such articles from young earners who have just started their investing journey (this edition is a good example. Also see, for example, audits by Suhas and Avadhoot linked below). Now over to Mr H.


I am in my mid-40s and have been working in the IT industry since the late 90s. I have a family of four- wife and two kids. Both of us work. My financial journey has been random and ad-hoc for a good part of my life (until I was almost 40).

I have been part of the Facebook group Asan Ideas for Wealth for about six years now. I regularly read freefincal articles, used the calculators to do the math for retirement funds etc. Recognized I was late to the goal-based financial journey, and we could not afford to experiment as we were short on time.

I had a private chat with Ashal a few years ago when he suggested a fee-only planner. We had started the goal-based financial planning/investing journey in 2016 when we engaged the fee-only SEBI RIA planner.

I am expecting to achieve financial independence in another six years or so with some caveat. X= per annum expenses (2021 value) in retirement. I express all goals, savings/investments as a multiple of X.

The basics

1. Health insurance: 10L base policy, 50L top-up insurance. Both my wife and my employers provide health insurance ~12 L.

2. Critical illness insurance: I used to buy it for about five years. Discontinued two years ago. Why?  A. understood (may not be fully informed one though) the critical insurance offered is usually loaded with many qualifiers and advanced-stage illnesses – so objectively looking at scenarios, chances of survival would be low in a situation where the insurance kicks off, and therefore family needs term cover more than critical illness in such situations B. the corpus accumulated is of decent size against the typical critical illness covers offered, did not see the value of that cover given that we have health insurance coverage(if living) and life cover( if dead)

3. Disability insurance: bought temporary and permanent disability insurance coverage for ~ 5 years. Discontinued it from this year. Why? Accident insurance: had a temporary disability, permanent disability and personal accident death cover for a few years. Dropped disability insurance covers as A. the corpus accumulated is of decent size B. Realized chances of temporary disability /permanent disability in IT /desk jobs is lower ( this is not a strong argument though) Permanent death cover is not required as term cover there

4. Home insurance: in place for structure. Bought for content for a few years, discontinued for last three years or so. Why?  A. the burglary theft insurance is not needed as we are renting in gated societies. The security measures are good B. insurance against natural disasters- fire/flood/quake etc. – I am prepared to absorb through corpus as the furniture costs vs corpus size are quite manageable.

For all three, i.e. critical illness, accidents (TD or PD) or home contents insurance – both of us work, both at 30%+ bracket – gives some insurance if one can’t earn due but lives due to an unfortunate reason and accordingly we will have to prepare & make adjustments to lifestyle expenses and goals.

In an unfortunate situation, if both can’t earn but live, the plan is to take an education loan for one or both kids(or balance the burden between the kids) and reset X to a lower amount so that 34X covers our expenses till we live. Use gold ornaments ~1 KG (physical) as a cushion to sponsor retirement or kids education.

Since the corpus for kids education is higher( more than our retirement corpus for 30 years) – we had discussed among us and with our kids( though both of them are not 18+) that we don’t sponsor their marriage or any other goal apart from US college university 4-year education.

5. Life insurance: I bought coverage of ~42X. I have three separate policies for different duration: one covers 17x, another one 17x and a third one 8x. My wife has coverage of 25x- two policies 12.5x each. The plan is to discontinue policies as we near/meet our goals progressively. My employer provides 21x, and my wife’s employer provides 9x life coverage. During our journey, we bought two endowment policies, one from LIC and one from HDFC- both we discontinued and managed to get some money back

6. Emergency funds: did not separately carve out. One portion of the debt component is flexi FDs, which serves as an emergency fund too.

Goals

1. Retirement: target is 30x. Plan to withdraw from 60, assumed longevity is 90. Plan to work from the early 50s to 60 in jobs that at least earn us X (post-tax); if we make more, that cushions our retirement funds

2. Two Kids education(college): 33x. School fees till class 12th are spent as expenses every year

Current state: have 34x corpus. About 26% in equity, 66% in debt, 5% gold and 3% savings. Equity comprises India direct equity, US direct equity and nifty index. Debt has EPF, FDs, Tax-free bonds and RBI bonds. Gold is SGB. We need to build another 29x.

Cash flows: we plan to (not guaranteed, private sector jobs) invest about 5x per year. So, expect to achieve financial independence (not in the strictest sense as we still need to make at least X every year till 60) in another six years. To keep math simple, I assumed portfolio returns would match inflation.

Real estate and home: I purchased a couple of plots(land) a few years ago. Invested in an apartment with siblings and parents, parents live in that apartment (the home insurance I purchased is for this apartment: it’s in the name of my father, sibling, and myself). And Ancestral home is in my father’s name. We plan to buy whatever we can afford(using land plots, partial ownerships in apartments and ancestral homes) for living in retirement.

Reader stories published earlier

As regular readers may know, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020. We asked regular readers to share how they review their investments and track financial goals.

These published audits have had a compounding effect on readers.  If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
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