Practical Financial Wisdom: An Investing Strategy That
Works
We’ve been talking to our community of investors about how
they approach investing to understand the practical wisdom that these
strategies often incorporate. We want to share one of these with you because
it’s so simple and elegant.
Our investor starts with his post-tax salary and divides it
into 3 buckets:
- 30% for his EMI or rental,
- 40% for savings
- and the balance 30% for monthly expenses.
The 40% designated for savings is automatically moved each
month from his salary account into investments. He invests in mutual funds
through SIPs dividing the invested amount into equity (60%) and debt (40%).
The house he lives in is determined by the 30% allocation to
rent/EMI. He is then forced to manage his monthly expenses within the 30%.
His annual bonus is used towards travel etc and large
one-time commitments are paid by drawing on investments. As and when he gets a
salary increase, he accordingly changes the amount for each bucket. He has been
doing this for over a decade and feels this works well for him.
There are a million ways to optimise this and one could get
into complicated allocation and investment options. But the most important
thing is that “it works for him” and some simple math confirms that this would
also meet his financial goals as and when they arise.
It’s almost important to note that in this above approach
our investor has incorporated the financial wisdom of ages:
- Spend after saving – not save what is left after spending
- Follow a disciplined approach
- Stick to your plan – don’t get distracted by market movements into taking haphazard decisions
People are constantly searching for the best ways to manage
their finances. Though there are several academic studies on the subject,
recommending right strategies for people, our discussion with people suggest
that people successful at this have arrived at their own ‘Practical Wisdom’ in
managing their finances.
Happy Investing
Source:Scripbox
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