Risk Management

The crisis in the US reminds me a bit of my own personal finances. Till last year, I was managing my money rather badly. I used to to maintain large amounts of money in my savings bank account. My investments were all ad hoc and I was not doing a whole lot of long term planning.

Last year, I decided to pull up my socks. I drew up an investment plan. I answered a questionnaire to find my risk apetite, used the 100 minus age rule to decide how much I ought to invest in equity and systematically put money into index funds. When the NAV went up I congratulated myself on my choice and when it went down, I decided that I was in there for the long haul. I also forecast my cash flows and moved the funds I needed as buffer into short term debt funds.

I had three bank accounts that I needed to maintain to pay my home loan, car loan and other recurring ECS mandates. I moved most of my funds into one account and set up reminders to ensure that I would move funds to the others only when needed. This, I decided, was better than keeping too much idle money in multiple accounts, making it difficult to manage. Then one day, the home loan reminder went off, I was in a hurry and I transferred money to the wrong account. The ECS instruction bounced and I was hit with a charge of 500 bucks.