Lets talk money: Book notes
Bharat Kalluri / 2023-05-21
Recently I have been on the lookout for good personal finance books. Books which serve as a succinct introduction to managing personal finances which I can recommend to friends and family. I've been hearing about two books frequently coined, one was Let's talk money and the other was Money Wise. I've picked up Let's talk money.
The book has absolutely great pacing and structure, starts with investment instruments which are absolute essentials and keeps progressively going towards more good to have instruments like mutual funds towards the end. Each class gets its own chapter and she does a great job of beautifully explaining the dynamics of the industry and how you can plan and use the class in your portfolio of savings
She introduces a concept of money box in which there are about nine classes of instruments. And in each instrument you can choose to either invest a certain amount or take a call to not invest. The idea is to have a comprehensive understanding of the options available so that we can take educated calls.
These are my own notes, the book offers much more than this. If you find these notes useful, definitely go buy the book and read it. Its one of the most accessible and well written finance books I've read
General Financial Planning
- Split money into three accounts: Income, Spending, and Saving.
- Maintain an emergency fund equal to 6 months of living costs, potentially in a fixed deposit or a liquid form.
- Ensure robust medical cover of at least 20 lakhs per person.
- Evaluate medical cover based on price, benefits, and claim processes.
- Acknowledge that medical cover prices will fluctuate annually and ensure both current and future prices are reasonable.
Medical Policy Checkpoints
- Ensure the policy doesn’t have a "Copay" clause.
- Investigate pre-existing disease clauses and their corresponding "Cooling" period.
- Check if the policy includes a “Disease Waiting” period.
- Investigate if the policy applies sub-limits.
- Look for any exclusions.
- Inquire about the coverage for pre and post-hospitalization costs.
- Request a list of daycare procedures that don't require a 24-hour stay.
- Evaluate the no-claim bonus feature.
Claims & Complaints
- Investigate claims data and select a policy with fewer than 30 complaints per 10,000 claims (avoid focusing on percentages).
- Be mindful that companies might group individual and group claims, with the latter often having a higher claim rate.
- Purchase critical illness and accident covers as added protection.
- Use the rule of 72: If your money doubles in X years, divide 72 by X to find the annual return rate.
- Avoid resorting to endowment plans.
- Aim for a cover that's 8-10 times your annual income or 15-20 times your annualized monthly expenditure.
- Whenever taking a large loan, secure a term cover for the full amount of the debt.
Timing and Type of Insurance
- Buy insurance as soon as you have or anticipate having dependents.
- The younger you are, the cheaper your premiums will likely be.
- Opt for term cover and avoid other complex insurance products.
- Do not delay investing due to a lack of a large corpus - start early.
- Remember: be an investor, not a trader.
- Establishing an emergency fund and obtaining insurance are strategies to safeguard your finances against unforeseen events, akin to a financial seatbelt.
The Money Box
I really liked this crystallized structure of thinking about personal finances
- Cashflow cell : Three bank accounts: salary, spends & savings
- Emergency cell: Money you'll need in a hurry (within a week or 10 days). FDs & mutual funds for this cell
- Medical insurance cell: Get help from a financial planner to find the best plan for you if needed here
- Life insurance cell: Term plan to cover for untimely death
- Almost there cell: Investments for needs that are two to three years in the future. Either FDs or short term mutual funds for this cell
- In some time investments: Investments for needs for three to seven years. Mutual funds fit here too
- Far away cell: Goals other than retirement. 100% equity mutual funds for this cell
- Retirement cell: PF & PPF and rest in equity funds if you can afford some risk. This is to build up for freedom in retirement
- Gold and real estate: Suggested not more than 5-10% of total portfolio in gold. Real estate can get pretty messy, suggested to keep it down to the house you live in