My Personal Financial Plan – Safal Niveshak

Sketchbook of Wisdom: A Handcrafted Manual on the Pursuit of Wealth and the Good Life

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At the end of his excellent book, Winning the Loser’s GameCharles Ellis wrote about two of his best friends who, at the height of their distinguished medical careers, agreed that the two most important discoveries in medical history were penicillin and hand washing (which stopped the spread of infection from one mother to another through the midwives who gave birth most children before 1900).

Ellis’ friends also advised him that there was no better advice to live longer than to quit smoking and wear a seat belt while driving.

The lesson that Ellis leaves the reader with is this –

“Advice doesn’t have to be complicated to be good.”

I’ve been an investor for over 20 years, which was good enough time to realize that an investor has a deep propensity for complexity.

Over the years, I have seen too many investors try to combat complexity by adding even more complexity to their investment process and financial life.

The world, you know, is complicated. And so are the financial markets.

In the midst of this, how do you deal with such complexity in your wealth creation journey without losing your sanity?

I believe the answer is to have a personal financial plan that is elegant in its simplicity.

And so, when it comes to my own money and finances, I try to keep it very simple.

Like this simple financial plan that I have been practicing for the past few years and that has served me very well.

Personal finance is, well, personal. But I hope this overview helps you review your own finances to find out

So, here is my simple personal financial plan –

  1. Make more money than I need right now (Amid the over-focus on saving money, working hard to earn more is an undervalued idea. But I believe it matters a lot. I can only save so much. But I can work hard to earn much more.)
  2. Save money (save first, spend later)
  3. Contingency fund (around 8-12 months of household expenses, saved in a bank account or liquid fund)
  4. Health and life/term insurance (I do not need any other forms of insurance)
  5. Invest the rest – (a) Money required for <5 let – Přidělte více na dluh (toto jsou peníze, které bych potřeboval v krátkodobém horizontu, a proto se zde zaměřuji více na ochranu kapitálu než na jakýkoli výnos) a (b) Peníze potřebné za >5 years – Allocate more to equity (this is the money I would need in the long term, so I focus more on capital appreciation which is faster than the rate of inflation. I also avoid investments that can destroy this money permanently)
  6. Write a Will (I realized the importance late but I am working on it now)
  7. Avoid debt (any high-cost debt like credit card debt, personal loans, etc.)
  8. Document (so important to let myself and my family know what I’m up to)
  9. Inspection every 6 months (maybe, 12 months. Not to dig in, but just to check if things are moving in the right direction).

Oliver Wendell Holmes, American physician, poet and humorist said –

I wouldn’t give a fig for simplicity on this side of complexity, but I would give my life for simplicity on the other side of complexity.

Simple can be harder than complex. You have to work hard to clear your thinking to keep it simple. But then, as Steve Jobs said in an interview in 1988 –

…it’s worth it in the end because once you get there, you can move mountains.

This also applies to managing your personal finances. In practicing simplicity and staying the course, you can also move mountains over time.

Stock market + entertainment = disaster

Paul Samuelson wrote –

Investing should be more like watching paint dry or watching grass grow. If you want a thrill, take $800 and head to Las Vegas.

There’s no denying that many investors like “good looking” portfolios invested in the hottest industries of the period.

My advice to them is to resist temptation.

The long-term expected return on an investment is inversely correlated with its short-term entertainment value.

More fun now (hot stocks, IPOs), lower long-term expected return.

Cut down on fun (boring businesses) now, the higher the long-term expected return.

So choose your investments well. Look for what is good for you in the long term, not what makes you feel good in the short term.

Reasons to stay alive

One of the best short books I’ve read recently is Matt Haig’s Reasons to Stay Alive.

An excerpt from the book reads –

And especially books. They were their own reason to stay alive. Every written book is a product of the human mind in a certain state. Add up all the books and you get the ultimate sum of humanity. Every time I read a great book, I felt like I was reading a kind of map, a treasure map, and the treasure I was directed to was actually myself.

If you’re feeling down, anxious, panicked, depressed, or just looking for inspiration, this book will pick you up. Read it.

That’s about all from me for today.

Thank you for your time.

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