Importance Of Documentation
What’s the part of money that we least discuss, but really need to? The part that can make life very difficult if the simple things are not done.
Transmission in the event of death.
I recently dealt with an unfortunate situation, and am now sharing some of learnings. Some of it feels obvious, but I am surprised how often it isn’t done.
The importance of documentation
1. Banking these days is so complex with accounts and different customer IDs and logins. Make sure that you keep all your information documented and share it with the family. It will be a wild goose chase otherwise.
2.Maintain a file of your financial life. Assets and liabilities. Bank accounts, credit cards, loans, policies (including physical), property, investments. Put it in one place so you and the family have an overall picture. Many times people don’t even know the number of credit cards they have or policies they have taken.
3.Create a will, it will make transmission easier. Check the easy boxes and have nominees everywhere. Including real estate. Make sure those nominees are updated at the right intervals. Make sure bank branches are updated to be close to you.
4.Track your income and expenses accurately. Make sure the family also has a sense of what kind of cash flow needs the household has. This will help them in future planning.
Less is more, so keep simplifying life
1. Every extra bank account, investment, small property, little loan … is an extra headache for someone else to track and manage. So keep less. All of us end up having extra accounts we don’t need — periodically simplify and shut down.
2.Control the amount of illiquid assets you have in your portfolio. It’s heartbreaking to see people have savings and investments and not be able to access them because they can’t be sold or they have huge exit barriers or breakage fees. I can’t emphasise how much liquidity matters.
3.Control and ideally make 0 unregulated investments and undocumented investments (including loans without paperwork). These will be the biggest nightmare in an already difficult time.
Don’t hide, but share information
1. Make sure you involve the spouse in money matters. Don’t hide rather actively share. Many spouses are not comfortable having this conversation, push them to do so. Involve them in reviews, sit down once a quarter and share financial updates.
2.When old enough, get the children involved and comfortable with money. Our children are more capable than we think. It takes time to get comfortable with money for anyone looking at things for the first time, so the sooner they start the better.
3.Seriously consider having a financial advisor. In all times but especially these times a good financial advisor is invaluable… in guiding the family through all the documentation and then retooling the portfolio for new circumstances and making the best use of the assets. I have seen many cases of this myself.
Money conversations are often avoided in our homes because they are difficult. They shouldn’t be, because not sharing information or avoiding conversations will lead to more chaos. And solutions can be found to most problems once conversations are had. India has very good advisors, tax resources, property lawyers, succession planning experts and many more professionals.
I also will admit as a member of this industry that financial terms are often complicated, tech sometimes confusing, and the whole process overwhelming. In my own capacity I pledge to keep simplifying for our own funds, and working towards improving service especially in these cases. Suggestions are welcome.
For me, difficult times are a reminder that money is more than a NAV. It can be a source of great stress and uncertainty or one of tremendous relief and assurance for our loved ones. And what it is often depends on the simple actions we take. Do think about this in the context of your own family and those around.
Managing personal finances with full-time job isn’t easy. Many don’t get time to study basics, let alone manage their portfolio. But, one thing that has helped me is setting up my finances before job start. The research during the bridge period (b/w MBA end & job start) solidified my basics and automated much of my portfolio. Given most of you are in this bridge period, here are 5 things can help kickstart your journey:-
1️⃣ MITIGATING UNKNOWNS — LIFE & HEALTH INSURANCE:- Largely a one-time effort and best locked-in early for cheaper premiums. Do have these personally irrespective of your company plan. What Sum insured, which type of plan, insurer, and add-ons are key Qs. Imo, a simple term plan 10–15x of your annual CTC and some add-ons (accidental disability, critical illness) and a family mediclaim (if unmarried) with minimal restrictions (no co-pay, room capping) work well.
2️⃣ THE LAST BUFFER — EMERGENCY FUND:- Keeping some funds in a safe, quickly accessible instrument ensures money to sustain lifestyle during unforeseen events like job lay-off, resigning, etc. How much funds, which instrument are key Qs. Aim for 6–12x your monthly expenses, split b/w arbitrage funds and FDs. Link for detailed instrument analysis in comments.
3️⃣ CAPITAL PROTECTION — DEBT & NON-EQUITY INVESTMENTS:- Once above are set, begin ‘savings’. Understand the purpose of safer, non-equity instruments that preserve capital. Which instruments, what maturity, how much capital to allocate are key Qs. Imo, EPF (auto deducted for salaried), PPF, and SGBs are good long-term instruments. Sprinkle FDs and arbitrage funds for shorter maturities.
4️⃣ CAPITAL GROWTH — CORE PORTFOLIO FOR INFLATION BEATING RETURNS: Next and most talked is investing to grow capital. Decide right instruments, investment amounts, and investing style (passive vs active). While well-chosen stocks can give high returns, mutual funds can provide better time-adjusted (and imo, absolute) returns in the long-term. Time and capital in market > returns % and highly likely an employee will invest longer, more regularly, and more money into MFs. Once decided, picking the right MF/stock starts. I devoted time to this & have my favorites but will leave it for next post.
5️⃣ THE ALPHA — SATELLITE PORTFOLIO FOR EXTRA RETURNS — Post setting up a solid core, one can explore alternate assets & active stock investing to generate extra returns. While it might be challenging during a full-time job, having a shortlist of investments can help. I shortlisted 15–20 stocks that I continue to track and invest when opportunity arises.
The above isn’t exhaustive but should provide a good base. If you have to prioritize, follow the order. Most importantly, slow down, spend time with fam, and explore hobbies. All the best.
