Last Updated on January 10, 2021 at 6:42 pm
As I opened a new column labelled Jan 2020 in the spreadsheet, I realised that I have been tracking monthly investments for long term goals in the same excel file from Jan 2011. A transition from tracking expenses to tracking systematic investments has changed the way I look at money and has taken me to financial independence within a decade of regular employment starting from a net worth of minus three lakhs (I was in debt).
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Some history about expense tracking. I have the account notebooks maintained by my great grandfather (would crumble into bits if I try to open it), my grandfather, and of course, my parents – using which I was able to write about, Inflation in India: Some Real Numbers.
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My parents managed the expenses and tracked them until Jan. 2006. When my dad fell ill, I started to use his notebook along with my wife to track expenses. We used the so-called envelope system like my parents. We used plastic dabbas instead of envelopes because they tore often when we repeatedly checked if they were empty or not!
In the envelope system, each type of monthly expense – milk, vegetables, salary for paid help etc. – would be placed in an individual container at the start of the month. The idea is that the basic and mandatory monthly expenses are accounted for, at the start of the month itself. Only the amount in the container should be (theoretically speaking!) used for a particular expense. Each month we would try and keep some dabbas in different places in the house to see if that would prove lucky and reduce our expenses. No such luck.
In 2007, I switched from a notebook to a graphing software called Microcal Origin. I had never used Excel at that time. I still maintain that file but do not update it.
Soon when I started making retirement and goal planning calculators, my emphasis shifted from “how are we spending?” to “how much are we investing?”. That was a bit of a watershed moment for us. The goal each month was to invest as much as possible. Initially, I was not able to invest as much the calculators told me to.
Somewhere along the line, I realised that as long we invested enough, it did not matter how much we spent (without borrowing). That is when I decided to give up the envelope system.
The key, in my opinion, is to track investments. Not expenses and not definitely not returns (at least for the first few years). So I created columns in Excel where the monthly investment target for retirement and other long-term goal were listed for the current year. I decided to increase this investment amount by say, 8-10% each year.
Later on I developed it into a monthly tracker (download link below) which everyone could use. Here is a screenshot to illustrate my point.
I tried to beat the target as much as possible that it irritated my wife. At times we did not have enough to meet monthly expenses because I would have invested a large chunk of my salary as soon as I got it. Yes, ‘pay yourself first’, expenses = income – investments, and all that sort of thing. It worked wonders to my net worth.
Unfortunately, I was a little too obsessed about investing. For close to 6 years, I was able to invest like clockwork. Thankfully, much of that was during the sideway market after 2008.
Unfortunately, soon I witnessed the perils of unexpected recurring expenses. My mom broke her hip (read about my experience with cashless mediclaim) and required an attendant. This sent my cash flow for a toss. My investment schedule was severely affected and it took me quite a while to recover. Fortunately, the markets started to move up around that time and all that “capital in the market” paid off big time. By December last year, I was able to catch up with my investment schedule.
My point is, first I was obsessed with tracking expenses. I got over that but instead became obsessed about investing each month. I soon realised that life can make investing regularly difficult at times. Now I am a lot more relaxed. As long as I meet my target for the year, I am fine. Don’t need to do it each month.
Systematic investing with a little luck from the market has taken me to financial independence: This is my 2019 personal financial audit: Have you done yours?
Older versions of above Post:
- Analysis: My Mutual Fund Investing Journey
- Retirement Planning: My Story So Far
- The rise and fall of my retirement corpus
If you are a young earner, I suggest you do not track your expenses or spending habits (get rid of those budgeting apps). Instead, focus on your long-term goals and how much you need to invest for each of them. Set your targets and do your best to meet it at least on a yearly basis. If you do it on a monthly basis, you can engage in some guilt-free spending faster!
From Jan 2011 to Jan 2010 the total monthly investment for long term goals has increased at an annualized rate of 17%. My target is 10% but it is not possible to do that each year. There will be some good and some bad years. The key is to improve the investment amount as much as we possibly can each year.
You can use this monthly financial tracker for this purpose. This is based on the version that I use, but only much neater! Download the monthly financial tracker
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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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