I said in the last post that I would write the next one on how I created my own Balance sheet. A disclaimer will be in order – while much of what I did in my life will be repeated even if I lived through it again, I did not necessarily do them for the same reasons that I am now having. However, when I look back, I feel quite surprised that most of the actions were fundamentally correct and that has stood me in good stead.
As we are talking of assets and liabilities here, I will restrict my experiences to those aspects only. I started work after passing out of IIM Calcutta in 1988. For about 5 years I really did not acquire any physical assets as I was living in shared apartment with friends and the apartment was furnished. I did not buy a Bike as for some strange reason I had always wanted my first vehicle to be a car. In this period I did buy some financial assets such as Debentures from L & T, Reliance and also had some FD in banks with the surplus money I had.
My need for purchasing assets started in 1993 when I rented a 3BHK apartment in Noida and had to furnish it for making it livable. The company I worked in then had a scheme of paying 12000 Rs for buying furniture, which took care of a lot of basic furniture. I had to put another 25000 or so to buy Fridge, TV and other appliances. I also got married in 1993 and most of the FD proceeds went to take care of the marriage expenses.
Between 1993 and 1998 we were a household with fairly high income and also high expenses. High income as both my wife and I worked and our salaries were fairly good for those times. Both our children were born in this period and this naturally resulted in high expenditure. Fortunately, my job change in 1994 meant that I had a car from the company and we did not have to worry about acquiring that asset. Financial assets were acquired in the form of starting PPF accounts, buying some shares from the companies I worked in and also a variety of debentures. In 1997 we also bought a Timeshare costing 1.1 lac, which we were able to pay off within 6 months.
When we shifted to Chennai in 1998, the need for asset creation assumed significance for us. Though the job in Chennai paid a fair amount, the company policy only allowed company cars of Vice Presidents and above. Unfortunately, I was not a VP yet, so I needed to buy a car. I wanted to buy a Maruti Zen costing 4 lacs plus. My wife had just given up her job and got her PF and Gratuity money which we used for down payment of the car. It still needed a loan of 1.5 lacs and I got one at a very decent rate. I remember the interest being only 6000 Rs for 1 year. This was a time of high expenses for us as we were settling down in Chennai and lower income as my wife had given up her job to take care of our 2 children. Our financial asset building was at a low key and was restricted to PPF and some FD with a view to purchasing a house later.
In many ways 2000 was a watershed year for our family. Professionally I became a CEO, which was great given I had worked for only 12 years by then. As my income more than doubled after the job change, we started looking actively for buying a home in Chennai. Our earlier FD as well as my wife’s PPF that matured in 2002 enabled us to make a reasonable down payment for a flat in a good locality of Chennai. We did have to take a loan from SBI of 20 lacs and I was already in thoughts as to how quickly we could possibly pay it back. Over the 2002 to 2005 period my main focus was on paying off the loan so as to get out of the liability. All surplus amounts including bonus and variable pay went towards pre-payment of the loan. By March 2005 we had managed to pay off the entire loan and saved a huge amount of interest in the bargain. We also bought our second car in 2002, a Hyundai Accent GTX costing about 8 lacs. We traded in the Maruti Zen for 2.25 lacs and managed to pay off the remainder in cash.
Post 2005 our main focus was on building up the equity asset base, both through direct stocks as well as MF. Apart from PF and PPF all other investments were in equity. Despite the crash in 2008, we started our regular SIP in 2008 and went ahead to buy more stocks in 2009. Over the last few years, this has continued in general terms. In 2009, we bought our third car a Toyota Corolla Altis costing about 14 lacs. Once again we paid for it in full through cash. In between we had shifted to Hyderabad in 2008, which considerably increased our expenses courtesy children’s schooling and other costs. At this stage except for the PF and PPF again, all other financial assets were being created in equity.
In 2011 I started to think seriously about giving up a regular corporate role and shifted to creation of financial assets with debt instruments. Over the next 3 years, bulk of my investments were in debt and a lot of it were in FMP and Tax free bonds. I continued the SIP in MF but toned down on buying stocks, though my wife started her own portfolio around this time. By end 2014 I had created a passive income stream to take care of my regular expenditure needs.
Today, I continue to create assets and they are mostly financial in nature, out of my Consultancy income. As you will see from here my secret to the strong balance sheet has been to create assets whenever possible, not taking loans unless it was absolutely needed and paying these off as quickly as possible. I have never really had any long term liability.