Everyone wants to be rich and wealthy, and the best way to earn more money is to let it work for you by investing it properly. Add to the fact that nowadays one can start investing with as little as ₹500 in mutual funds, everyone wanting higher returns is ready to jump into this world. But is it the right time to start your investment journey?
To get the most out of your investment, its important that you should reach a few essential financial milestones before starting your investment journey. Diving into investing without a proper foundation is risky and foolish. Take care of the following financial to-do list before you start investing:
- Have a Proper Budget in place
Jumping into investing, without having a proper understanding of your finances is like jumping into deep waters without knowing how to swim. Understand where you stand financially – do you have enough to cover all your expenses and are left with some spare income at the end of the month?
It is really, really important to have proper control and understanding of your financial situation before putting the said money in the stock market. The best way to gain this knowledge is by creating a good working budget. A proper budget will help you know where your money is going every month and if you can really afford to start investing. For example, It doesn’t make sense to start investing when you are covering your expenses with credit cards.
- Create an adequate Emergency Fund
Financial difficulties and emergencies come unannounced. It’s always best to be prepared for such uncertainties. Before you start investing it is imperative that you have a proper emergency fund in place so that you can get through tough times. Therefore, start building your emergency fund with your spare money and only when you have created an adequate fund should you consider investing the rest. This way you don’t have to withdraw from your investments to cover sudden unexpected expenses.
Worse, having to withdraw when the stock market goes down. You’ll lose significantly.
- Get Insured
Life is unpredictable and insurance is necessary. It is very important to get adequate insurance covers based on your situation and requirements. If you have dependents get life insurance (preferably term insurance) to secure their future, and of course every one should opt for health insurance to take care of medical emergencies. Investing and insurance are two entirely different ball games and you should take care of them separately. But always prioritize insurance over investment.
- Pay your Higher Interest Debts
You should pay off any high interest debt before you think about investing. The interest you pay on that debt will cancel out your investment returns. If you have high interest debt (anything say around and above 8% annually) there is nothing better you can do with your money than pay down the debt. Get rid of your debt so that you can start investing and start earning interest instead of paying it. Getting debt free means more money to invest, as your money is free from interest payments and other charges.
Even though you can start investing with little money, it’s better to wait and achieve these milestones. Have a budget in place, and understand how much you can save monthly. Next build an emergency fund with those savings. Third, get a proper insurance cover. & lastly pay off those high interest debts.
Taking care of these milestones will give you a proper foundation on which you can start building your investment portfolio.