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The Panchsheel of Personal Finance

Author: Venkata Ravi Ram/Thursday, August 3, 2017/Categories: Cover Feature, Save, Invest, Profit, Grow

The Panchsheel of Personal Finance

In June 1928, the humorist Robert Quillen labelled the expression “Americanism” as using money you haven’t earned to buy things you don’t need to impress people you don’t like. This article is about five basic tenets relating to your personal finances that help buy financial flexibility. These are by no means “new, improved with better shine”! All five are time-tested and relevant today (no…any day). Let's begin.

Spend less than you earn

This is simple and one gets it instinctively. Spending more than you earn only pushes you into a bigger financial hole. How can one save where there is nothing left? Add to it, the stress it piles on you. Think of Floyd Mayweather (well-known American boxer won $75 million for one fight, blew it and became bankrupt), it is a reaffirmation that your capacity to save does not depend on your earnings but, spending.

Controlling spending habits is hard but, do you like going to bed at night knowing that the party you paid for on credit card is one more EMI to an already long list? Breaking spending habits is hard but harder is the fact of living with an increasing mountain of debt and interest.

Or sample this quote by well-known American civil servant J Reuben Clark Jr. -”Interest never sleeps nor sickens nor dies… it never takes a vacation…once in debt interest is your companion every minute of the day and night; you cannot shun it or, slip away from it, you cannot dismiss it and whenever you get in its way or, fail to meet its demands it crushes you”. Spend less than you make.

Fixed costs

Fixed costs are exactly that – fixed. Keeping them low is the most sensible thing one can do to improve financial flexibility. If you have a large home loan EMI, you are going to have that for a long time. Same with the car loan EMI and these are due every month. Large EMIs mean that there is lesser money for other things. In addition, credit card EMI, cable TV bills and stuff like that 1GBps broadband, phone bills, all add up. The more your earnings are pledged to meet fixed costs, the less the financial flexibility. Keep fixed costs minimum.


No one likes budgeting or, talking about it. But, if we don't track spending, it normally runs away. Budgeting is a standard equation: we have inflows and we have outflows. If inflows are higher than outflows, there is a surplus else, a deficit. Again, looking at inflows and outflows, it is reasonable to assume that it is easier to reduce spending rather than increasing the inflows, as most people have more control over spending than their income. To control spending, one needs to track it and that brings us to budgeting.

Budgeting can be broken into two steps. One, write things down. You cannot reduce expenses if one does not track them. Just like weight goes up, balances in bank accounts tend to go down when left untracked. The first thing in budgeting is to write things down. Two, develop a plan. A plan to reduce debt; to start saving for emergencies; retirement and investments. A sensible lifestyle and living within a budget give financial flexibility.


“I am Nigeria Finance Minister dying with no heirs and want to give millions to you”. Sounds familiar? Beware of any and all get-rich-quick schemes. These are financially crippling. Just when you have enough money saved, your friend tells you about this great investment that is guaranteed to provide huge returns, only if you act now! And, before you know it, your hard earned savings are gone. Keep in mind, any investment idea that seems clever or, complex is not good. Many people have lost their life savings to these get-rich-quick schemes and, the last thing you want to be is an addition to that list.

In general, there are four ways people build wealth. One, possessing a specialized skill (a Messi or a Ronaldo, a heart surgeon, etc); Two, got some fantastic business idea, companies like Facebook, Microsoft, Google were great ideas first; Three, luck. You get lucky and win a lottery or, are born to wealthy parents or, were standing at the right place, at the right time when someone else has a great idea and starts a business. Sadly, being “lucky” cannot be a great strategy for building wealth and, that brings four to the fore.

Save early; save often

Start small, put a little money away each month in a recurring deposit. You sleep better knowing that you have some bank balance. Long steady savings is how most people get wealthy and savings are addictive. A recurring deposit with a bank is good for most people to get started. Another option is to invest in the stock market, best one would be a diversified fund or an index fund that tracks the Nifty or Sensex. Diversification with an index fund means you don’t rely on the stock-picking skills of a fund manager. Next is when you buy, whether you hold for the long term (which research has shown to be seven years and more). People invest in the stock market as a twenty or thirty year thing. Do keep in mind that you are not investing in the stock market to pay for your next month’s home loan EMI, for that you have your job.

To recap, spend less than you make. Be careful of locking your income with fixed costs, be a little careful in what you buy,  the house, the car, the clothes, eating out. Being careful means the need to develop a budget which means planning and regularly measuring where you are financially.

Finally, once you are in a position to save, accumulate wealth through long, steady savings, avoid those clever get-rich-quick schemes that promise out-of-the world returns with little or no risk that just doesn't happen invest for the long term you do these things and you will increase your chances of being financially secure. All the best!

(The author is a passionate writer, who doesn’t mind sharing timely advice matters that matter).

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Venkata Ravi Ram
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