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10 Simple Rules that Brought Me Financial Nirvana

I was in Ahmedabad last week for my Art of Investing Workshop (here’s the proof), and met a few young executives – in their mid 30s – who had questions about how I have managed my own financial life so well so far.

A couple of them were, in fact, amazed to hear my story and told me that I have been an exception.

“That’s not true!” I told them. “I have not done anything special in my financial life that anyone else cannot do.”

In fact, whatever I have done to bring myself to a stage of financial nirvana – if I may use that term – I have done with the help of some simple rules on how I treated my money over the years.

Now, while I am too young to dispel any life-changing advice on “how to be a financial rockstar” or “how to remove all financial worries from you life”, I am happy to share below 10 rules that have changed my life for the better over the past few years, and how these can also benefit anyone who practices them with discipline and integrity.

Here are those 10 rules.

Rule #1. Save, Save, Save
Save at least 10% of your net take home pay during the first year of your career, 20% in the second year, and so on.

Plan to increase it to 50% in five years. Saving more is always good, but 50% is a number you must certainly target.

The best way to meet this target is to follow this simple equation of “Income โ€“ Saving = Spending”. First save, then spend of what remains.

When people get amazed to know how I managed to get debt-free before I turned thirty-three, please know that this formula helped me a lot.

(“Debt free before thirty three” can be a nice rhyme kids can be taught in primary school) ๐Ÿ™‚

Rule #2. Restrict EMIs
Never have your EMIs โ€“ on home loan plus car loan plus any other loan โ€“ more than 30% of your net take home pay. If you have extinguished this limit, donโ€™t borrow any more money.

The highest I ever went to was 40% after I bought my car in 2007, but brought it down to under 30% after I repaid the car loan in 2008 from my savings.

Since 2011, when I repaid my entire home loan, EMIs have been 0% of my income, and that has added to the confidence with which I am living my life.

Rule #3. Create Emergency Fund
Create an emergency fund that is at least 6 months of your household expenditure. Keep this money in your bank account or in a liquid fund.

Donโ€™t touch this money to pay for a new carโ€™s down payment! This money would help you when misfortune strikes in the form of a job loss or illness.

I had an emergency fund of 12 months when I decided to quit my job. Luckily, I did not have to withdraw even a single rupee out of it. But just the thought that I had an emergency fund brought me a lot of emotional comfort while making that life-changing decision.

Rule #4. Buy Medical Insurance
Even if your company provides one, buy a personal medical insurance policy that will cover you and your family even when you quit your job or are out of job.

I know the importance of having a medical insurance, as I benefited from it when my daughter Kavya fell seriously ill when she was just two years of age. Not having a medical insurance would have enhanced my trauma.

Rule #5. Buy Term Insurance
If you have dependents, buy term insurance.

How much? If you are 30-40 years of age, have 2-3 dependents, and have zero liabilities, insure yourself for at least Rs 1 crore.

Also, if you are 30-40, have zero or less loan liabilities, and maintain good health, there is a good probability of you surviving the next 30 years. So don’t get overboard with the cover. A maximum of Rs 2 crore should be enough.

Rule #6. Pay off High Cost Loans
Try to avoid high interest loan like credit card or personal loan. But if you are unfortunate enough to owe one, pay off as fast as you can.

As Charlie Munger says โ€“ “Once you get into debt, it’s hell to get out. Don’t let credit card debt carry over. You can’t get ahead paying 18 percent.”

I have never borrowed a credit card or personal loan, as I know these are things that could kill me financially.

Remember – If you wouldnโ€™t buy something in cash, donโ€™t buy just because you can use a credit card or borrow a personal loan.

Rule #7. Never Borrow for Liabilities
Avoid paying interest on anything that loses value.

A car – especially a big one that you may not need but to show off – tops this list. Electronic toys – mobiles, tablets, LCDs etc. – come next.

You may still buy a car (one car) on loan, but try to repay that loan as fast as possible. Also, see to it that the EMI does not lead you to cross the 30% EMI-to-salary criteria.

Please remember โ€“ for whatever the banks will tell you, a loan would never bring you peace of mind. Too much of it, in fact, can be a road to hell.

Rule #8. Repaying Home Loan
If you have an option of paying off your home loan versus investing that money, know that itโ€™s both a financial and an emotional decision.

Avoiding paying off a 6% interest (post-tax) home loan and instead sensibly investing that money to earn 12-15% return is a good financial decision. On the other hand, clearing the home loan instead of investing that money is a nice emotional decision.

I went by the latter when I was quitting my job, but you can choose to do the former.

Rule #9. Know the Priorities
Donโ€™t invest in the stock market โ€“ directly or through mutual funds โ€“ till you have an emergency fund, medical insurance, and term insurance in your kitty, and also till you repay all high-interest debt.

In fact, don’t invest any money in the stock market that you may need in the next 1-2 years. If your stocks fall in this short period of time, your financial life may get compromised.

Rule #10. Itโ€™s Not (Always) about the Money
While these rules will help you take better care of your money and financial life, remember to not get too focused on these things that you lose out spending time on the real joys of life.

As a wise man, or maybe a woman, once said, โ€œNo matter how hard you hug your money, it never hugs back.โ€

What do you say?

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. aditya modi says:

    Dear VIshal,
    a simple subtle post again.. Love the ending..

    Terrific lesson for me ๐Ÿ™‚

  2. Good post. Interesting insights… ๐Ÿ™‚

  3. Your last rule, “Itโ€™s Not (Always) about the Money” is probably the most important one, something I am discovering as I get older and the number of years ahead of me shrink. I look back at all the relationships I had to ignore in my “busybody” pursuit to be “someone”. After 25 years of pursuit, I am still “no-one”, but maybe 60% (or more) of life has gone by. For proof of being “no-one”, just tell your child, “I am a vice-president”! See if that brings more admiration in the child! ๐Ÿ™‚ Then try telling the child, let’s go out to the park, or “let’s play a game”. Then see what happens to the child’s face! Or try it with your wife, “I am vice-president”. Or tell her, “I love you and let’s go out together for a movie”. Look for the difference in her expression (assuming she still has hope on you)! ๐Ÿ™‚

    So if you are not financially independent, rule is “Itโ€™s Not (Always) about the Money”. And when you are financially independent, rule is “Itโ€™s almost never about the Money”! Here’s wishing everyone a wonderful and joyful life, free of money worries.

  4. Hi Vishal, Looking like modern age yogi with your glasses on ๐Ÿ™‚ ..
    let me know when you are conducting advance level workshop in Mumbai.
    It was promised in your last workshop..
    Prakash

  5. vishal,,,,,,,
    as always its a wonderful post
    thnx

  6. So well put.. but one point kept haunting me.. only 30%-40% of income for EMI. I am planning and being forced at home for buying a home and the EMI looks scary 70% of my income. Given the dilemma the prices might INCREASE. frankly am happy with 17% of income for rent..

  7. Nitinkumar chauhan says:

    Dear Vishal,
    The work shop was simply outstanding and only of its kind with a great financial advisor/mentor like you ๐Ÿ™‚
    Thank you very much for sharing all this stuff and it was great pleasure to meet you personally.

  8. Nice post and it gives me a feeling that i comply to most of them except i m paying home loan which is 8.25% fixed so never thought of clearing it:):).
    The only other difference is that no plan to quit the job but i am still able to save 30-35%( excluding EMI) of my savings..

    Thanks for giving me the confidence that i m on my way to Financial Nirvana

    Saurabh

  9. Nice post. Every time I read your posts, you help me avoid impulsive buying. Thank you so much for your simple but powerful guidance towards financial nirvana.

  10. This is brilliant post Vishal! I’d suggest you put it as a ‘sticky URL’ somewhere at the top!!

    I particularly like the way you put numbers into your posts rather than throwing in volumes of literature.

  11. A very nice article. But, hard to see such people these days. I am bad as of now in many of these rules. But, I have to slowly follow these rules to attain financial freedom.

  12. Dear Vishal,

    Both me and my wife are working as an officer in PSU (we both are 30 yrs old), and having one son (4 yrs). Our annual gross income is around 12 lac. We both are availing medical reimbursement from our company even for our dependents,and this is also provided after our retirement. Should we go for medical insurance? What is your thought on this?

    • Dear Sudhanshu, is the amount of medical reimbursement sufficient for your family’s needs? And also, is it on an actual basis? Thirdly, do you plan to continue with this job throughout your career?

  13. Great post! I have been following Jagoinvestor and Subramoney when I came across this. Looks great… subscribed!

  14. Good one Vishal.

    Great to capture some of the Golden Rules for Financial Freedom ๐Ÿ™‚

  15. For me financial freedom is the first milestone to a (relatively) free and independent life.
    As long as you are fearful of how I will get the next meal we tend to remain subservient.
    However, there are exceptions and many achievers and freedom fighters did not subscribe to this and achieved heights which were exceptional but then their goals were different.
    For ordinary folks, financial freedom is the first step and achieving it should be one of our key goals.
    Read “Rich Dad, Poor Dad” to get this concept clear.
    A great list by Vishal.

  16. Thank you for sharing so generously.

    Have a very good day.

  17. Hi Vishal,

    I love this article and would love to put it in my e-zine for January issue. Of course I will give you full credit with a link to your website and Twitter. Please let me know ASAP if that’s alright.

    Thanks,
    Zoe

  18. Respected Sir,

    after all said and done, I have some simple questions!!!

    Any one who teaches they start from savings but no one understand that savings are derived from earnings!!

    Not many people around us have regular or constant earnings! do you have one? specially After leaving the job. But our basic expense are constant and regular!

    Its very difficult to save and invest (on not assured returns methods like stocks and markets) when you don’t have regular income against fixed monthly expenses.

    Not many of average Indians are skilled towards earning a good regular income where they can save good amount of money after maintaining a middle class life style.

    I am on such person.

    Financial nirvana is far as it state of just NIRVANA month on month which avoid me form thinking of trading my under capitalized account as I may end up losing more money & from INVESTING such small amount & wait till it becomes multibagger which will not take care of the 3months of my expense even after it becomes 10 time just next day.

    The biggest asset over anything is the ability to earn regular income which is more than your expenses, all will come latter.

    SB

    • SB, this article starts with the basic assumption that you are earning money.

      The ‘nirvana’ I talk about here is not the state of temporary financial freedom, but permanent.

      And to achieve that, you surely have to earn more than your fixed monthly expense…not for one month, but month after month.

    • Dear SB,

      There is no escape from earning more money than expenses. That is why wise men have said that the biggest asset is “you”. Even investing to me is an act of building secondary assets that would free up the “main asset” which is you to contribute at a higher level to “your life”. Investing is not about chasing money, but about using money to free “you” to move closer to your purpose.

      One has to practice the smaller games (which is develop your abilities to earn more than your expenses) as preparation for the bigger games in life. One cannot play international cricket for India until one has passed through school, district & state level tournaments! Even if one gets selected to play for India since one’s uncle is in the selection committee, the honeymoon will only last for a short time. It will not be a permanently performing role at the highest levels! ๐Ÿ™‚

      And yes, you are right. Most Indians (includes me) struggle to earn enough to meet their monthly expenses, so it is hard at that stage to take major risks with whatever capital they may have saved. All saved capital comes to be viewed as “survival” capital rather than “growth” capital. But the learning’s from such struggles will eventually culminate in moving to higher levels in the game of investing & life.

      -Rajaram

  19. Hello Vishal,

    Very nice post and very nice blog. I like when things are put in a simple way, all these rules are important and a good reminder, knowing that there is one thing more important than money itself and it is TIME, as you describe it so well in your last rule.
    Time with our loved ones is the most valuable thing.

    Maria

  20. Saurabh Sharma says:

    Hi Vishal,
    I disagree with you on buying car on cash basis or on loan basis. Please see my calculations and then please tell whether i am right or not?
    If we take loan for 5 years of Rs. 5 lacs the interest paid would be around 146000 at 11% interest and if we make FD of this 5 lacs the amt we will get after 5 years will be 780000 @ 9% which is 2,80000 more then what you paid as interest. So after deducting 20% tax on FD intrest you get a diff of Rs. 77000 in 5 years which is 1298 Rs. per month. So dont you thnk is a cost of one month petrol.

    Waiting for more comments on this.

  21. Dear Sir,

    I live with my parents (Joint Family) and since I am salaried person and can get easy loan, most loans are taken on my name, though I am most happy among my friends as I have no home loan (staying in Parents owned flat). Also I don’t save except some MF and PPF as my income goes home and it is Dad who takes all decision, My question is how does one work about with this rules in case like mine.

    Thanks for all wonderful advice you have given to us till date.

  22. yogesh Shisode says:

    This is really very nice article Vishal.
    Thanks a lot… ๐Ÿ™‚

  23. Hi Vishal,

    Very very useful article for every human beings.

    Especially that last line ๐Ÿ™‚

    Regards,
    Mathi

  24. Hello Vishal,

    I came across your website recently and liked the fact that you combine lessons on investment with minimalism and philosophy.I too want to like you be able to retire early(in another 3-4 years ) from my corporate job. Thereafter I would like to work but not at my current hectic pace. Also I would like to work on topics close to my heart which should give me some income but nowhere close to my current income levels.

    In the last 2-3 years, I have been focusing on the financial aspects and have investments spread across in Equity, Mutual funds, Insurance. I wanted to know your views on investing in Mutual funds using the Systematic Withdrawal plan with an aim of getting approx Rs. 20000 pm(with the intention of covering some of the routine expenses like maintenance, utilities, children exps etc)

    Look forward to your ideas
    Regards,
    Maneesha

    • Thanks for writing in Maneesha!

      Yeah, you may do that. But not withdrawing from your investments and instead cutting your expenses (if possible) to sustain within a lower income will be a better idea. Even if you withdraw from your investments, ensure that you do not do it for a long time (like, beyond six months).

      Hope this helps.

  25. Hi Vishal,

    This is really inspiring. I am also feeling the load of home loan and planning to repay it in any condition. Getting rid of debt burden is the biggest relief in life and that I have realized after taking this home loan.
    Thanks for sharing your experience & tips in such a simple words. ๐Ÿ™‚

  26. Hetal A. Singh says:

    Good read ! Loved all the points. I am too ‘Debt free before thirty three’.. Paid my home loan and car loan and now, all take home is for me, saving or spending .. I am loving this independence.

    I just came to know about your blogs and videos and found quite interesting. Thank you for sharing knowledge !

  27. I’m 42 years old,salaried with a good salary..I have a wife and 4 kids..whats a good term insurance out there right now for 1 crore?..could you tell me please..

  28. Dear Mr Vishal ,
    I have joined your Tribe , looking forward to some good experiences ahead.

    Thanking you.
    Regards,

    U.V.Ramana

  29. Hi Vishal,
    I admire u for what u have made of ur life.wish u all the v best.
    plz guide me I too want financial nirvana…I have about 50 lakhs which I want to keep in the bank (icici-ppl tell me private banks are nt safer as compared to nationalized banks is that so?) and live off it.
    .I have only a 11 yr old daughter,v r 3 of us. im not gifted like u to do things to earn like u do.thus is my amt enuf? if I cud save some from the interest amount every month it wud grow my capital slowly right…I want to quit my job in the gulf & return bk to ind and live a peaceful life with my fam. kindly advice.
    thanx &regards

  30. Amit Bhatia says:

    Hi Vishal,

    Great Read! I am a new investor to the stock market and new member of the safalniveshak family. I will read all your blogs and become better as an investor. Thanks again.

    Regards,
    Amit Bhatia

  31. “remember to not get too focused on these things that you lose out spending time on the real joys of life”
    Thanks for this line – I think most of the people in our generation don’t really get this. Finances matter only till a point, thereafter your life experiences with your family, friends and community come in to the fore. Neglect these at your own risk. Nice piece.

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