Wealth Grid, as the name suggests is a matrix of your wealth. But before I get into the details, I would first like to tell you about the origin of this concept.
Why Wealth Grid?
In past, I have been fortunate enough to have worked in a highly process oriented industry. (Read more about me and my past in an interview here). And I have a strong belief that no matter who you are OR where you are OR what you do, nothing worthwhile can be achieved without following a structured approach which has proper well defined systems in place.
In financial terms, for some people, something worthwhile might mean becoming rich and being counted in some club of Crorepatis. For me it might mean something far less materialistic. In past too, I have been a proponent of following a structured approach like the Core-Satellite approach to build one’s long term stock portfolio. Now when you think of a grid, the very first image which comes to mind is something like the one given below –
A grid is a collection of cells, where each and every cell has a proper well-defined place according to some pre-defined logic. And each and every cell has some or the other relation with cells adjacent to it.
How Does Wealth Grid Help?
Now the question comes that how can we use this wealth grid? Now, to be honest here, I am still developing this concept, which may eventually spread out and encompass use of multiple grids for different purposes. But this current grid structure, which I will explain in just a little while from now, simply helps in identification of asset classes. Once identified, it aims to map these asset classes to their respective (correct) time horizons, depending on the end use.
What Exactly is Wealth Grid?
Now on the very first glance, it might not be easy to think of your wealth in a grid like structure as detailed below. But once you clearly understand the concept being tracked on x-axis and y-axis, you will realize that this is quite a helpful structure which allows one to view their wealth on a simple timeline in accordance with the end use of the money.
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| A Basic Wealth Grid |
As you can see in this very basic Wealth Grid, the columns are used to track the purpose of that asset class, i.e. short term, medium term or long term. The rows are used to track liquidity of these asset classes. This is important because a mismatch here can be disastrous. Suppose you intend to pay for your child’s college fee in next few months, and for that you have bought stocks of some good Indian companies. But unfortunately at time of fee payment, stock markets crash and shares of companies you have bought also go down with them. Now how will you pay the fees? You are in a fix. You might have to borrow some money from your close relatives or take personal / education loan from the bank. I hope you are realizing the gravity of such a situation…
But if the same money was parked in Cash / Fixed Deposits / Recurring Deposits to be used later, then the possibility of any such crisis happening would have been eliminated. Why? Because the correct asset class (non-risky one) was being used to fund a short term expense.
Eventually, it is all about understanding when to save and when to invest (and mind you, there is a difference between the two).
And if you observe closely, I have marked Wealth Grid as [Beta], as I am still working on this concept. It is still not complete. This grid only gives a snapshot of the asset side of your finances. But another important component of our financial lives is debt or loans. Going forward, I would be incorporating the loan and other aspects as well in this Wealth Grid. Rest assured, I will keep you guys updated about the developments.
I will leave you all with a sample (real life) Wealth Grid, which can be used to track one’s wealth. As you can see below, one can get a very comprehensive picture if the Wealth Grid is properly maintained:
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| Sample of Real Life Wealth Grid || Click to enlarge |
In the meantime, if you all have any suggestions to improve this grid, please share it with me by means of comments or you can email me directly at stableinve….@gmail.com
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have columns for risk and volatility
Seems like an interesting addition.
Can you elaborate as to how this would be helpful for the user?
Hi,
You may need to restructure your grid to show what you own… Many Indians own 80 % in real estate and 20 % in the rest of the asset class… This can help them to see if some of the goals can be met using the existing assets… They should also have returns on existing asset classes :-)…Not trying to complicate…
In terms of assets the following are missing
– Tax saving mutual funds
– Non Convertible debentures
– Tax free bonds
Thanks
Jai
Hi Jai
I had intentionally left out real estate because of two reasons:
1) I don't own any (but plan to)
2) It would skew the matrix
But having said that, it would actually give an incomplete picture if the real estate part of one's wealth is not shown. But will see how to incorporate the same as there is a difference between a residential property (which does not earn) and a property bought as an investment (earning property).
Thanks for the ideas 🙂