How I Invest My Monthly Salary

Where and how do I invest my monthly salary

Photo by Andre Taissin on Unsplash

I am not getting a fixed salary as salary employers get. I run my consultancy business so my income is not fixed. In some months I earn handsome income few months earnings are low. So what I do is, I average out my yearly income and that income I consider as my monthly Income. So first step after averaging out is to fix my percent % saving rate. I definitely save 30% of my monthly consultancy fees. As I always emphasize Goal-based investment, I have decided on my short-term and long-term goals. My short term goals are

• Solo trip to Canada— After 6 months
• Purchase of car — 3 years

My long term goals are

• Retirement planning: 25 years
• Down payment for Farmhouse: 10 years

So now as I have a clear idea of my goals I can choose my asset allocation for each and every goal and choose the correct financial products. Let’s now see where I am investing for each goal.

I have calculated the Future cost of each goal and back-calculated the amount required to invest in today’s date. Sometimes I may experience a shortage of investible surplus, so I am using Step up SIP (systematic investment plan) where I will increase my SIP amount every year by 10%.

Let see how I am investing my investible surplus for each and every goal.

• Trip planning: 100% Debt

I am accumulating trip expenses for the last 1 year. I am having a Recurring Deposit in my bank. Tenure is 1year 6 months. So after 6 months, my money will be ready.

• Purchase of Car: 100%debt

I have already had an FD(Fixed Deposits) for 2 years. I will extend it for one more year. I have started a SIP(systematic investment plan) in a good quality liquid fund and overnight fund for the targeted amount. So for this purpose, I am using FD(Fixed Deposits) and liquid and overnight funds.

If you don't know what I mean by Liquid and overnight funds then I will explain it.

Liquid funds are debt funds that invest in fixed-income securities such as certificates of deposit, treasury bills, commercial papers, and other debt securities that mature within 91 days. Liquid funds do not come with a lock-in period. The redemption requests of liquid funds are processed within 24 hours on business days.

The risk levels of liquid funds are on the lower side. Liquid funds are considered to least risky among all classes of debt funds as they mostly invest in high-quality fixed-income securities that mature soon. Therefore, these funds are suitable for risk-averse investors.

while

Overnight funds are debt funds that invest in overnight assets, or securities with a residual maturity of one day. This is a new category of debt funds that was introduced as part of SEBI’s mutual fund reclassification exercise in 2018.

In evaluating overnight funds, two criteria are commonly used: returns and expense ratio. Since overnight funds invest in securities that mature overnight, their performance should be measured on the basis of one week, or at most one-month returns.

The expense ratio is the amount that is charged by the fund annually for managing the investment portfolio. The net return to the investor is calculated after subtracting the expense ratio. Hence higher expense ratios reduce the final return to the investor.

So now for my short-term goals, my asset allocation is 100% in Debt. And my financial instruments are RD (Recurring Deposit), FD(Fixed Deposits), liquid fund, and overnight debt fund.

• Retirement planning: 70% Equity 30% Debt

I have built my Equity portfolio based on Core and satellite approach. In this pattern, 70% proportion of the money is invested in Large and Multi cap funds. The large-cap can generate 10 to 12% returns for SIP investments. These funds provide stability and minimize the downside risk of the market. The remaining 30% portion is invested in good quality in Mid and Small Cap as satellite portfolio which has the potential to generate 15 to 18% returns.

So for Equity, I have good quality large and Multi cap funds, One passive Index Fund, and One Mid and Small-cap fund.

For the Debt part I completely rely on PPF(Production Possibility Frontier) as I am not salaried I don’t have EPF (Employee Provident Fund) benefits. PPF and EPF are the best debt instruments for Retirement planning. I contribute 1.5 L every year in PPF. I also use a long-short debt fund as one of the debt instruments.

So for Debt, I have PPF and one long term debt fund

• Down payment of a Farmhouse: 80% Equity 20% Debt

It is my dream house. I want such a house where I can spend my weekends with nature and forget all worries and be refreshed to serve my clients well. I am trying to accumulate as much down payment as possible so that I can take a lessor loan.

So here I am taking some risk so that I can accumulate more amount. So my proportion to Equity will be 80%. In that too I am investing 60% in Large and multi-cap and 40% in Mid and Small-cap.

So for Equity, I have one Large and Multi cap fund and one Mid and small-cap fund.

20% of the Debt part I will cover by having one long-term debt fund and for the conservative approach, I have one ultra short-term debt fund.

So this way I invest my salary for my life goals. But before investing I have my Emergency Fund ready, I have taken sufficient life cover and health cover for myself and my family. All my BASICS are covered

Thank you for reading and good luck with a more happy life.