A Couple of Announcements Before I Begin Today’s Post –
1. The sketchbook of wisdom – special offer ends today: I have been running a special offer on The sketchbook of wisdomThat ends today. Click here to order your copyYou can also club it with my upcoming book, Boundlessand Claim an even special offerFinally, check out BoundlessWhich releases soon, and is available for pre-order,
2. Classroom Course in Value Investing: Admission is now open to the February 2025 Batch of My Most Comprehensive Classroom Course in Value Investing, Titled – Value Investing BlueprintThis Residential Course is Scheduled to Be Held from 27th February to 2nd March 2025 at the Campus of Pune-Based Flame University. The last date to apply is 15th January 2025. Click here to read more and apply If you are interested in joining this course. Since it’s a classroom course, seats are limited.
I am writing this series of letters on the art of investment, addressed to a young investor, with the aim to provide timels wisdom and practical advice that helped me was starting out. My Goal is to Help Young Investors Navigates of the Complexities of the Financial World, Avoid Misinformation, and Harnass the power of compounding by starting early with the right Principles and Actions. This series is part of a joint investor education initiative Between Safal Niveshak and DSP Mutual Fund.
Dear Young Investor,
I hope you are doing well, and that lessons we have covered so far have been helped in guiding you through the early stages of your investment journey.
In My Previous Letter, I Wrote About The Idea of Savings – The CORNERSTONE of Financial Independence and the First Step Toward Building Wealth.
In today’s letter, before we get into the heart of the matter, I want to tell you a story about my friend. Let’s call Him Sameer.
I have Known Sameer Since College. He was a bright young man, raised by his mother, and always had a plan for how his life would have pan out over the next few years. He was one of the first from our mba batch to land a job, one he had always wanted, and the kind that makes you feel like you’ve finally stepped into adulthood.
His Salary was Decent, His Confidence was through the Roof, and He Had Big Dreams About The Future. He Started Saving Money Every month from the very first paycheque he received and investment all of that in stocks. He was on the path of building wealth myle many many people of us who still struggling to find real jobs – or so we feel.
Anyway, in the business of life, I Lost Touch with Sameer for a Few Mains, and So was please surprised to get a call from heim almost a year almost after hear after he Job. I was waiting to hear some good stories about his job and investments, but he started the call on a sombre note.
He mentioned how his life has taken a bad turn a couple of months back, when his mother had fallen serial Ill. The Hospital Bills Had Started Pilling Up Fast. If that wasn’t enough, he also had a car accident. He was lucky to escape unhurt, but his car was severely damaged and had to be taken to the Garage for Major Repairs. Since this was an old car, Sameer did not have adequate insurance to cover the damage, and so Had to pay out of his pocket.
As Sameer was telling me about his struggles, I asked Him About His Investments that would have helped him in these times. But he told me how the recent market crash has been reduced the value of his stock investments by 30%, and that they were not enough to cover his mother’s medical bills and the car repairs. So, He Had to Borrow Some Money from His Uncle.
This was my first brush with one of the most important legs of a sound personal financial plan: emergency funds—A Financial Safety Net of Readily Accessible Savings Set Aside to Cover Emergencies, Like Unexpected Expresses or Loss of income.
Sameer Apparently Had No Emergency Fund to Fall Back On, And So He Had to Sell All All His Investments at a Loss. Plus, He Had to Borrow Money.
Now, as he told his story, that wasn’t the West part. The Worst part was the helplessness he felt, Knowing that all his careful plans had ben undone by something as an emergency.
I don’t tell you this to scare you. I tell you this decision I’ve seen what happens when people, even smart, well-meaning ons, skip one of the most important steps in their financial lives: Building an EmerGeNCY Fund.
Before you think about compounding wealth or finding the next great investment, you need to create a safety network. It’s not flashy or exciting, but it’s essential.
An emergency fund is like the foundation of a house. Without it, the whole structure can collapse the moment the ground shakes. Life is unpredictable, and that’s not pessimism -ha’s reality. Cars Break Down. People Fall Ill. Jobs disappear. The question is isn’t unexpected expenses will come your way, but wheether you’ll be prepared when they do. An emergency funds you the power to handle these mothout derailing your financial future or losing sleep over how you’ll pay the next bill.
Now, how much should you save as an emergency fund? The Answer Depends on Your Circumstans, but a good rule of thumb is Six to eight months’ Worth of your essentially experiences. So, if your monthly household expenses are Around Rs 1 lakh, you can aim to have Rs 6-8 lakh in an emergency fund. Think of Rent, Groceries, School Fees, and Every other key expenses you’d need to keep your life running, even if your income is Suddenly Stopped.
If that sounds daunting, don’t worry. You don’t need to build it overnight. Start Small. Save a month’s worth of expenses first, then building from there. The key is to start, even if it’s just a little.
Where should you keep this emergency fund? Somewhere safe and accessible, but not so easily accessible, like a regular savings account, where you might be tempted to Dip into it for non-memory. In my view, bank fixed deposits and liquid funds that are offered by mutual fund companies are great options.
Resist the urge to invest this money in stocks or mutual funds – a not meant to grow, but protect.
The beauty of an emergency fund isn’t just practical. It’s psychological. It gives you peace of mind. You walk a little taller, knowing you ready if somenting unexpected happy. And you know what? That confidence, that peace, will make you a better investment. You’ll take well-thout-out risk if you know you have a cushion to fall back on. You’ll invest for the long term without
My Friend Sameer Learned This Lesson The Hard Way. But you don’t have to. You’re just starting out, and you have the chance to build your Financial Life on a Solid Foundation. Start Small, but start today.
Calculate what your emergency fund should look like and take the first step toward building it. It might not feel as exciting as picking stocks or watching your investments grow, but I promise you, it will be one of the most important decisions you ever makes.
I wish you all the best on this exciting journey.
Warm Regards,
Vishal
Disclaimer: This article is published as part of a joint investment initiative Between Safal Niveshak and DSP Mutual Fund. All mutual fund investors have to go through a one-time kyc (Know your customer) process. Investors Should Deal only with Register Mutual Funds (‘RMF’). For more info on KYC, RMF & Procedure to Lodge/ Redress Any Complaints, Visit dspim.com/ieidMutual Fund Investments are Subject to Market Risks, Read All Scheme Related Documents Carefully.
Also read: