I worked in an IT company for more than seven years. After that, I left my job and started a small online product company. I tried multiple things in the past 3 years during my startup journey where sometimes I failed, and sometimes I did hit the jackpots.
My personal finance management skills helped me to survive through the turbulent journey of the startup world.
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My finance management during my job
The major source of income for a salaried person is its salary only. My wife was also working in an IT company and we used to enjoy 1,00,000+ monthly salary, combined. We were using my salary to pay our EMI and monthly living expenses and my wife’s salary for investment & building emergency fund.
Apart from salary, we also had a little extra money as an interest income.
The biggest expense on our pocket was EMI payment of our home loan that I took for my parental house in my hometown. We were paying similar amount in rent because we were living in Gurgaon.
As most of IT professionals, we had our regular expenses on daily travel, monthly bills, dining and groceries.
On an average, we were spending 50% of our total income on monthly basis.
I was in favor of investing all our savings into equities while my wife was in favor of the safest investment, yes, you guessed it right, fixed deposits. I don’t know why most of the women are so afraid of investing in equities.
Anyways, this conflict of where to invest gave us a balanced portfolio. We decided to keep our investments in three categories.
#1. Liquid (Cash)
We always paid all the EMI and bills as soon as we received our salary. We learnt how to make the investment process automated in a couple of months after our marriage. We kept an amount equal to our monthly expenses in our regular savings account and invested rest of the money for our short & long term goals.
I know that many people keep accumulating their salary in the savings account, but they are losing 3 to 4% interest by keeping their money in savings account. They should at least move the extra money into fixed deposits.
#2. Safe (FD & PPF)
We worked on our long-term financial goals and started investing in fixed deposits. We did not had any emergency fund, and we realized that it was our biggest financial mistake. Our first goal was to save 1,00,000 rupees for any unforeseen emergency. We achieved that goal in 5 months by saving 20,000 every month as fixed deposits. We continued to save more money in the emergency fund for another 1 year.
The feeling of being safe was tremendous as there was an emergency fund in our hand at the time of urgency. We committed ourselves for not using even a single rupee of our emergency fund unless there is real urgency like job loss, a medical case beyond coverage of insurance or a life loss.
Luckily a need for using our emergency fund never rose and that fund continued to grow with the interest received and being re-invested.
#3. Equities (Gamble, from my wife’s point of view and the real investment, from my point of view)
We agreed to open a demat and trading account where we will experiment with Equities. I am saying it as an experiment, because I had a speculative knowledge of stock markets at that time and we decided to put a very small amount of our hard earned money into the share market.
I tried trading and value investing, and quickly figured out that a long-term value investment would be better for me rather than trading on daily basis. I lost a lot of money in trading initially without learning much about the fundamentals of stock trading.
I started reading books like ‘The Intelligent Investor’ and followed the investment ways of Warren Buffett & Charlie Mungar. I did not make a huge amount of profit in since five years until last month, when I fortuned out 2.5X returns on the stocks, which were constituting 60% of my portfolio worth.
Despite of great returns from equities (that I learnt in past six years), we still consciously invested in a balanced portfolio. We knew our priorities and invested accordingly.
If you are planning to invest in equities, then be disciplined, start with a small amount, learn a lot about value businesses, and don’t ever trust on the stock tips.
My finance management during my startup
Finance management for a startup person is totally different from a salaried person. Ideally, you should not invest much into the equities because your startup itself is your private equity. Here, I want to restrict my advice to the startup founders because most of them are more knowledgeable and experienced than me.
I want to touch base the basics of finance for those who are starting up a venture or planning to take the leap from job to startup.
If you are planning to start a company, do remember that it may take a few months or even years to see an average amount of revenue. So, just prepare yourself to survive without any income unless you figure out any passive source of income.
I already had my emergency funds and my savings into the stock market. I was able to survive without income for only two years because I was burning my savings into my monthly bills.
Most of my income was from bank interest, dividends or capital gains until I started earning money from my freelance writing & consulting work.
I have two separate accounts (physical as well as virtual) for my business and personal expenses. I have current account for business and savings account for personal expenses, yet, I maintain excel sheets for planning & maintaining the records.
You should strictly manage both funds separately as it helps to keep things simple and uncomplicated. The first priority should be the survival of your family and then business. It provides you with the mental strength and courage to take risky decisions in your business when you feel that your family is on a safe side.
Although, I can take independent decisions with the money available for business but I have to seek approvals from my wife whenever I need to transfer money from personal account to business account. It worked great for us and helped me stay disciplined with my financial management.
There is nothing much to say about expenses, as both salaried and business people have to eat the same daal-roti and travel in the same car (at least I am doing the same). Sometimes you have to postpone your leisure because your business needs your focus as it will only pay your all bills and expenses.
I am not doing any fresh investments because, as of now my startup CashOverflow is my investment. And, I am expecting good returns from my startup. The same compounding principle (that work on your investments), works on your startup investment as well. You just put regular money and sufficient time into your startup and your efforts will start paying you back after a few months or years.
I keep shuffling money in my existing investments only and try to make regular income from my startup and side projects.
There is no generic formula for managing your finances because everyone has different perspective, priorities & goals in its life. Just be conscious and vigilant while making any financial decision and don’t get trapped into scams for the greed to become rich overnight.
Feel free to contact me to ask any question and I will try to answer them to the best of my personal experience. I am not an investment advisor or a legal professional. I am still learning by doing the things, and you can do the same.