Personal finance playbook

A 6-step playbook for 20-somethings to make peace with money

Like all things in life, personal finance is simple. Like all things in life, we make it complicated. You don't have to be a major in finance to handle your money. Here I’ll be writing a few simple steps that you can take to get your financial life in order. The good thing about all of these is that they don’t need your active involvement. These are either one-time actions or can be automated if they need to be repeated. Since I am a 20-something & these will contain things I have learned & done, these will mostly be suitable for 20-somethings. However, I have come to realize that people don’t necessarily get better with money as they age. So no matter your age, this may be a good list to visit & check if basics are sorted. One assumption that I am making here is that you have a regular income.

We’ll start with a basic list here & then have one detailed post linked for each of these points. Here we go -

1. Know your money

   Know where you are getting your money from. It’s easy for most of us. Most of us are not lucky enough to be getting random credit to our accounts.

   Know where your money is going. I am not a big fan of keeping a tab on every paisa as I myself cannot do it even though there are tons of apps available to do just that.

   What I usually do is that I have one account where my salary is credited & another account from where all my automated investments deduct money. So as soon as I receive my salary, I transfer the amount to be invested in the other account. I don’t have a card for this other (investment) account. Neither do I have any UPI apps linked to it. So I can’t anyway spend the money that goes there (by now, I don’t think I would spend even if there was anyway). Whatever is left behind in my salary account is what I can spend. Now I don’t need to account for each paisa spent as I have taken care of the amount that is to be invested.

   Some people also recommend having three accounts - income, expenditure, savings. You can try what works for you. But have a personal cash flow in place, know your money.

   Pro tip: I have always viewed my investment as an expense. Just like I had to pay the rent, I had to pay the amount for my investment every month. This way to look at it helped me stick to it in the initial year or so.

2. Get an Insurance

   Yes, you need insurance. Life is unpredictable. When you park your vehicle inside your home/building, you still lock it, right? You still lock your safe when going out even though the main door would be locked. You always cover yourself an extra bit. Consider insurance that additional lock. Pay for it & pray that money goes in vain. Probably the only time we would want our money to go waste. There are two types of these - 1. Health & 2. Life.

   Each one of us needs health insurance, we may or may not need life insurance depending on our life situations.

   Here is a detailed guide on what to look for when buying health insurance & also on how to evaluate your current policy.

   Here is a detailed guide on Life Insurance. When to buy, what to buy & more importantly, what not to buy.

3. Max out your EPF contribution

   If you are a salaried individual & have an option of changing your PF contribution that is deducted every month, opt for the maximum deduction. Because this money will be difficult to access, this will be the one that’ll benefit the most (courtesy compounding). If there is no PF deduction, don’t fret, you just need to take care of the money yourself. Just be disciplined enough not to touch it.

4. Build an emergency fund

   There will be emergencies. Buying the latest gadget is usually not an emergency, job loss could be, a medical situation is. Oh & the gadget is important too but we’ll come to that in the investments section :)

5. Tax saving

   If you are a salaried individual in the tax paying bracket. You need to know a few things about decreasing your tax liability. While this seems so obvious, over the last few years that I have been working, I have seen quite a few people completely ignore it or not utilize the entire permissible limit.

6. Investments

   This is what everyone wants to talk about. This (& also in the tax-saving above) is where you put the money to grow. But the steps before this one are equally important. I personally focus on goal-based investing & thus choose different products for different goals. I’ve automated my investments to the extent possible & only have to re-visit them every few months to check on them. Our behaviour plays the most important role here. It is as or even more important than the products we invest in.

Now that we have defined the 6 blocks of personal finance. We’ll visit each individually & talk about how to slay in each of these areas :D

Let’s make money do what it is meant to do - put you at ease!