TFN#84: 🪜 How’s your financial condition? See the checklist

Reader,
Why do we work?
We work to earn money and enjoy our lives by eating good food, living in a comfortable house, and weathering away tough times.
Whatever discussions we had so far through Friday letters, they were more or less aimed at one direct goal: to level up our career.
Starting today, I want to discuss one of the most important aspects of levelling up our careers: money management.

The main challenge of talking about Money Management

“It depends”, that’s what you hear in most advice or educational material on money management. Because every person’s situation is unique when it comes to money.
So, advisors and educators must tell the audience to take everything with a pinch of salt.
In this letter and the letters to come, I will try to be as specific as I can be. Constantly trying to decrease the amount of un-written “it depends” in these letters.

What qualifies me to talk about money management?

The fact that I earn money, save it, invest it and enjoy my life.
I can’t furnish any financial advisory certifications. And even if I could, a certificate would only indicate that I had taken up a course in financial advising. Nothing less, nothing more. Taking up a course and applying lessons in life are two different things.

More importantly, money management is not rocket science. If you feel that it really is, then it is most likely due to the manufactured complexities of financial institutions and their advertisements.

This reminds me of this scene:
​In this clip (watch-time: 5 minutes) from the movie The Big Short, actor Ryan Gosling and the celebrity chef Anthony Bourdain explain how banks make things complicated when it comes to financial products. The context is a bit different but you’ll get the idea. No wonder, the same strategy would have been used on us, the knowledge workers.

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In a way, following Nassim Taleb’s quip in Skin in the Game: “Don’t tell me what you think, just tell me what you have in your portfolio”, I will be sharing the things that I practice. And I would be able to explain my reasoning when quizzed.
​Sidenote: in fact, since the beginning of Friday letters, the whole idea is to share what I practice. Nothing else.

The North Star

Long-term wealth creation is the ultimate goal of my money management exercise. Now, that’s my direction. Yours may be a bit different depending on your life and temperament. You may want to focus on your immediate needs due to children’s education, elderly care or wedding preparation.
But if you’ve been enjoying our exchange for the past one or more years, we might have the same North Star: long-term wealth creation.
Having such an ultimate goal/purpose helps in making day-to-day decisions. You can always pause and ask yourself “does this decision lead to my end goal?”

First thing first: Diagnosing our financial condition

Any doctor would check our physical conditions first, before recommending a medical intervention.
Similarly, before beginning to do anything about our money, we have to take a look at our financial condition.
This is my checklist in this order. The order matters.

1. Emergency Fund

A 3-6 months worth of living expenses saved in a bank account. Ready to withdraw at a moment’s notice. This is the number one checklist item that I make sure I have and maintain. Emergency fund shields the rest of the investments: whether they’re bank fixed deposits (FDs), mutual funds or stocks.
So, when a huge unforeseen expense arises, we don’t need to borrow money or ask for an advance on our salary. We can just use the emergency fund.

2. Health Insurance

Once you’ve begun building the emergency fund, it is important to have personal health insurance. There are so many Mediclaim products in the market that it is difficult to decide. But what matters is, that every working adult in the family must have their health insurance with the highest coverage they can afford.
Sticking with a reputed health insurance provider that provides cashless facilities in nearby hospitals would help during any medical emergency.

3. Vehicle Insurance

This is now mandated by law. Still, many people either opt for the lowest possible vehicle insurance coverage to fulfil the compliance or don’t get it at all. Vehicle damages and accidents occur more frequently than we believe, so getting good vehicle insurance provides a great safety net.

4. Life Insurance

This checklist is important for those who are sole/main earners in their family. There is always an ongoing debate about which type of life insurance product one should opt for: term life insurance (that lasts for 10-30 years) or whole life insurance.
In Indian society, it is expected of the main earners in the family to have a contingency plan in case of their demise. So, having signed up for a life insurance plan that would sustain our family in case of our untimely demise, they should get some monetary compensation. The compensation would help them absorb at least the financial shock and slowly recover and adjust.

5. Investments

This item in the checklist comprises different types of investments that we would have made: bank FD, post office savings scheme, recurring deposit, mutual funds, stock, gold etc.

6. Regular Savings

When the checklist items numbers 1 to 5 are taken care of, the remaining cash in the bank will help us meet our day-to-day expenses. Whatever amount remains at the end of the month, turns into regular savings that we would utilize whenever required.

What does your checklist look like?

At this moment, we are not talking about how much money we have invested, saved or got insured for. Just surveying which items we have taken care of.
Suppose during this exercise you realized that you have a substantial amount invested in bank FDs and mutual funds, but do not have dedicated emergency funds and other insurances, then it is high time that you begin working from checklist item-1.

Without taking care of the priority things first, any medical or non-medical emergency would throw you in debt and punch holes in your investments.

The bottom line

What I have observed and realized over the years is that skills and financial appraisals alone are not enough to accelerate our careers and level up our work. Having a little bit of control over our money matters provides a cushion in times of work uncertainties.
And most importantly, it lets us take risks in our careers.
Sharing the two short films (watchtime: 30 min each) that changed my life when it comes to personal finance. The films are written and directed by legendary storyteller Amole Gupte himself. The second film instils fear in our minds. And a little bit of fear is necessary. Because reason alone doesn’t drive us.

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Don’t forget to watch and share these incredible short films with your loved ones.

I know it was a long read. I hope you enjoyed it.
I’m grateful for having received guidance from one of my brothers at the right time in life. It helped me get interested in my money matters and begin the lifetime journey of learning.
In any case, how did your checklist turn out? Did any of these things resonate with you?

Hit Reply and share it with me.

Reads of the week:

​Link​
Jeff Atwood describes himself as an average programmer and writer. In this short but entertaining post filled with some anecdotes, he echoes what I have experienced first-hand. Who needs talent when you’ve got intensity?

Sony Interactive Commercial Patent

I came across this meme on X. And it is mind-boggling how simple of an invention such as this could change the way advertisers spend money.
The idea is to have interactive commercial advertisements and programs. For example, if a TV program gets a McDonald’s ad, the viewer can shout “McDonald” and the ad will get skipped. Interesting, isn’t it?

Orwell & Goode @OrwellNGoode 3:35 AM • Dec 4, 2024 8726 Retweets 211181 Likes Read 911 replies

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