I have spent about 15+ years in software industry and exposed to financial learning aggressively from about 10+ years. Such an experience in both side of world puts me in a unique position to mix and match them and marry them together as I see similarities on them.

Yesterday while reading a book on Sir Warren Buffett’s annual letters from 1973-74, I observed that he was explaining role each investments played in his portfolio and it stuck with me as Single Responsibility principle from SOLID principles.

Here is my attempt to tie SOLID principles from software industry to personal finance.

S : Single Responsibility : Every financial product in our portfolio needs to have a single role to play. It should be either Insurance or Investment or Own consumption. Buying a home for own consumption and considering it as an investment is a no-no. Buying an insurance which plays role of investment too is straight no-no too. Any product having two roles to play is usually bad for both the roles.

O : Open for Enhancement, Close for modification : SIP is fantastic example of this. You can add a new SIP to enhance your investment but you can’t modify an existing SIP. In fact most financial products are designed this way. Term Insurance, Health Insurance, Endowment Policy, Fixed Deposit etc. Once you define details and start putting money for the product then onward you can’t change the product much, all you can do is enhance the product with additional purchase of it or withdraw it all together.

L : Liskov Substitution : All the products in our portfolio should be replaceable with their competition. Found a good mutual fund having better potential to deliver high return keeping risk within your limit. REPLACE. Got a better insurance coverage from a better insurer with lesser premium. REPLACE. Quoting Buddha, attachment is source of all suffering. So lookout for better product.

I : Interface Segregation : All the products should be aligned to fulfill one and only one goal. Label each product with their goal. Such a labeling process comes handy when you need to make purchase / withdrawal decisions. Got windfall money? Just decide what you want to use it for in future. You want to use it for your child’s education then invest in product labelled with that goal. Planning vacation? Withdrawal for fund labelled with that goal. No complexity of choosing product every time, you go through that pain only once when you label them with a goal.

D : Dependency Inversion : Source of income is our only dependency. One should try to have multiple sources of income. If not, then at least enhance their core skill to ensure to get better income. Getting stuck with one company and cribbing about it all the time is a clear sign of tied up with dependency in classic software world.

This is my perception of SOLID principle with Financial Products. Please leave comment if you agree / disagree / like / have argument about them, I am sure to follow up with you.

Lastly, before closing the article I would like to leave you with a thought. “SOLID investment is a liquid investment”.

Enjoy!