The 2014 personal financial audit

Published: December 29, 2014 at 8:00 am

Each December, I conduct a personal financial audit. I take stock of my financial goals and other aspects of personal finance relevant to me. Last years audit can be found hereThis year, as a forerunner to this post, I had written about how to conduct a personal financial audit and invited readers to conduct one themselves.

Why do this? First, I would like to make it clear that the purpose of this post is not to brag or show off.  the purpose is to highlight some of the questions that could be of relevance to you. I write this because I interact with many readers and friends who have not done such an exercise for themselves. When my liquid net worth is higher than that of someone who is earning three times of what I make, I would like to think something is wrong with their approach.

Regardless of what you think of the following, I urge you to take advantage of this time of the year and make the time to understand where you stand, where you need to go, and how to get there.

I have completely killed the romance of such an exercise. I have been doing this for the past 8  years and have slowly automated the process. Today I just use the monthly financial planner  to keep track of investments  (been doing this for 8Y) and the  automated mutual fund and financial goal tracker to keep track of goal corpuses, CAGR, asset allocation etc.  (since last Dec.). While the process has become convenient, it has come at a price. Few years back I used to be so excited to do the audit in Dec. Today I can do it anytime I want by opening a file and clicking a few buttons – not quite as exciting but actually a good thing!

“There is something in people; you might even call it a little bit of a gambling instinct… I tell people investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

Paul Samuelson, “The Ultimate Guide to Indexing,” Bloomberg Personal Finance, 1999

So now over to the audit.

I have three long-term goals. (1) Retirement, (2) my son’s education and (3) his marriage. Like most others, I too would like to go on a long trip abroad and live in a bigger house.  I will not worry about these wants until my needs are taken care of. So I see this as an opportunity cost.

The only reason I take my sons education and marriage seriously is to make sure when the time comes for these events, my retirement corpus is not touched (hopefully!)

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Last Jan. my mom had a fall and broke her hip-thigh joint. This meant she was no longer independent (as a Parkinsons patient, this was an eventuality anyway) and we had to hire a person to care for her during the day. So this screwed up the  cash flow structure.

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Therefore, I decide to not invest for my son’s marriage anymore. As it turned out, whatever I had invested so far, if untouched, should be reasonably enough to cover this expense. So I am not going to invest anymore for this goal.

For the last 6-7 years I had been investing each month pretty much like clockwork but this unexpected recurring  expense took me 3 months to set my cash flow back in order.

So this year my investment schedule got screwed up, although by now I have ensured the monthly quota for retirement and my son’s education are complete for this year.

As luck would have it, the markets started to soar early this year and I could afford to not invest each month!  I started investing in equity during the 2008 slide from (then) lifetime highs so I had never seen the market behave like it did this year.  I was amazed to see what a bull run could do to your portfolio. I gained every other day what I would invest in a month.

So this year I waited for the market to correct just a little and the pushed in whatever I had to invest.


Net equity mf portfolio CAGR: 21.1% (as on 27 Dec 2014 since June 2008)

New Pension Scheme CAGR: 10.88% (as on 11 Dec 2014 since Mar 2010, 8% before that since Aug 2006) + PPF (contribute Rs. 500 a few times a year since Jan 2007)

If I retire as intended (at 65) I will be able to generate inflation-protected income for close to 9 years. Which is decent, if not spectacular. Considering I have 25 years available, it is not bad at all.

If I retire now, I will be able to generate inflation-protected income, again close to 9 years. Unfortunately, in my case, I cannot exit my NPS before 60, else 80% of the corpus will be annuitized.

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If the rules are the same for corporate NPS (please check), then it is the single most important reason why you should not take it, esp.  if you intend to retire early, the NPS corpus will be useless to you. EPF is so much better in this regard.

The most important development this year is the monthly investment amount required. It has significantly decreased thanks to the bull run and is still falling because I invest nearly twice as much as requires and much more than my monthly expenses.

As per my initial calculations, I must increase the monthly investment by 10% each year.  I don’t need to do this, but will try.

My aim (and hope) is to keep investing this way until  the monthly investment amount becomes equal to my mandatory monthly NPS contribution at that point, my retirement planning will be in auto-pilot mode. Meaning, I need not invest anymore.

Even now, if my current equity portfolio CAGR were to not fall below 20%, I need not invest any further if I wish to retire by 65. The existing corpus will grow to the nest egg I desire, provided I do not use it for other expenses.

If I continue investments, I can retire in about 10Y. Which is not bad at all. Especially considering I am an academic and do not receive corporate-style salaries (say at upper-mid level) and raises.  Find out when YOU can retire with this tool.

Since I cannot guarantee either event (CAGR < 20% and touching the corpus in the future), I will invest as much as I can, for as long as I can.  Down the line when things get comfortable, I will use my investment amount to take a holiday. Until then, it is an opportunity cost.  The same with real estate purchase. I intend to do this (not for investment) when my retirement is in auto-pilot mode.

Am I making sacrifices for retirement planning (which according to some kids is overrated!)? Hell no! I enjoy investing. I enjoy watching the corpus grow – just imagine Matthew McConaughey pound his heart in the Wolf of Wall Street and you will understand. Being a long-term  investor is as exciting and intoxicating.

Btw, I do not expect more than 10% from equity (see why)  and about 8% from debt (after tax).

Btw, why break your head over direct equity, when you can do it so easily with mutual funds?  All it needs is discipline and investments to the best of one’s ability.

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Calculators used to compute this information

Son’s education goal

I discussed my future plans for this goal in detail a few days ago: 

 Net equity mf portfolio CAGR: 20.6% (as on 27 Dec 2014 since Jan. 2010) +PPF (in his name)

I have assumed the current education expense as 50 Lakhs with 10% inflation and 10% increase in monthly investment.

So far, I have been on schedule for this goal.

Calculators used to compute this information

That is it. No Fds, RDs, debt mutual funds (as of now), endowment plans, gold or real estate investments.

Here is some fooling around: normalized evolution of my long-term goals along with Nifty. Too short a history and 100% during a bull run. So don’t take it too seriously. I just wanted a picture to go with the post!



Notice despite a significant drop in corpus, my son’s education goal due to rebalancing, it sprang back to join the Nifty and even beat it (so far)! That, I guess is the magic of a bull run!

Life insurance and Health insurance

These are in auto-pilot mode. So not much to do here. Thanks to the bull run this year, my net worth is now higher than my term insurance policy.  This means slowly (hopefully surely) our dependence on an expensive LIC term plan is decreasing.  Hopefully, after a few years, we can get rid of this policy.

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Mediclaim is from United India (8Y old).


The best advantage of being in the highest tax-slab is one does not have to worry much about tax-planning! Section 80 C is taken care by NPS, Section 80CCD by NPS, 80D by mediclaim, 80G with WorldVision, done.

Thankfully I did not buy endowment policies or Ulips and only used ELSS early in my career. Now, I have gotten rid of them all except of course PPF. It is tagged to a goal, so not a problem.

Monthly Budgeting 

It is a waste of time. All those mobile apes, sorry apps, to track expenses…. what a load of BS micromanagement.

I used to meticulously track my expenses and use an envelope system. For the last couple of years, we don’t care anymore.  As long as my investments for long-term goals and my annual expenses (insurance premium, school fee etc.) are accounted for, it does not matter how much we spend.  Now, there is a mobile app idea which would be useful, but will it sell?! If anyone is interested in developing such an app, contact me!

That is it. In the time it took me to write this, you can finish your financial audit many times over, if you use the tools listed in this post: how to conduct a personal financial audit

Give it a shot, I promise you, you will feel in control  even if life has other plans for us. Trust me, been there, done that.

If you are a young earner, you can find answers to many of your questions here: Young Earner Archives

If you are interested in knowing more about my personal financial journey: The Financial Arrow of Time

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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 two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. 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 on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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