Week 1 – Of Personal Finance, Net Worth, Advisors & Grace Groner

One Lesson – To Increase Your Personal Finance Awareness

Since this is the first post, I want to start with the most basic question.

What is Personal Finance?

Everyone will tell you that “Personal finance is personal to each person. It is management of your finances”. But there is a lot more to it.

The essence of the term “personal finance” is truly felt when you manage your financial situation in a way that secures not only your current and immediate needs but more importantly secures your future too. In personal finance and in life, I believe that you must align your present self with your future self. If you aspire to be wealthy in the future, you must align your actions today to ensure that you do end up wealthy.

It cannot be reiterated enough that planning your finances is not just one-time procedure which will then take care of itself. You need to constantly assess your finances and modify the plan based on the circumstances. It includes a lot of elements such as setting up emergency fund, goal-setting, retirement planning largely. You need to take care of your insurance requirements. You must figure your current and impending debt situation. You must plan your taxes. You must have a Will in place.  

Managing your personal finance is an ongoing process. Even though you have it planned, you must take corrective actions and modify your plan periodically.

It’s about not being rigid. It’s about being mindful.

One Idea – To Change the Way You Think About Money

Track your net worth and do so periodically. It could be any interval but no longer than a year. This will make you more aware of your investments and liabilities. It will also allow you to take a step back and re-consider your current cash flows and plan for a better tomorrow.

One Hack – To Add More Money To Your Bank

Avoid buying financial products sold to you by banks and by your relatives. It is more likely that they are the ones who end up with the net benefit, not you. Consult. Always consult. It could be your friends who are interested and educated enough about personal finance or even better, hire an advisor. It is always better to pay for an advisor.

One Compounding Story – To Convince You About The Power of Compounding

Grace Groner lived nearly her entire life in Lake Forest, Illinois, about 45 minutes north of Chicago.
 
After graduating from Lake Forest College in 1931, Grace was hired as a secretary at Abbott Laboratories, where she worked for more than four decades.
 
Grace never earned an amazing salary as a secretary. According to the Los Angeles Times, she got her clothes from garage sales. She lived in a one-bedroom house that was willed to her when a friend passed.
But in 1935, a few years after she started her job at Abbott Labs, she bought three shares of the company’s stock for about $60 per share. Her total investment was under $200.
 
Grace never sold those shares. Through dividends (can we call her a dividend millionaire?), share splits, and dividend reinvestment, when she died in 2010, her three share purchase was worth $7 million. She left it all to her alma mater.
 
The two most important lessons from this story? She started small. Just with $200. She took advantage of the power of compounding — for 75 years! She made time her friend. 

My advice for you – Do not start looking for stocks which would compound for 75 years. Grace got lucky that her one stock compounded for 75 years. You might not. Buy Index Funds if you think you have such long horizons. Start early. Start small. Make time your friend.
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Other Publications:

Three Things I Learnt From Morgan Housel

Making The Case For Financial Freedom

Very Boring. Works Like Magic.

Three Books I am Reading:

Deep Work – Cal Newport

The Art of Thinking Clearly

Leonardo Da Vinci

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