5 Important Things to Keep in Mind Before You Start Investing

5 Important Things to Keep in Mind Before You Start Investing

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There are several things you must do to improve your financial situation before you start investing. Most people make the mistake of not caring about their dues and debts before you start investing. Before investing or spending a single dollar, make sure you have a solid financial base, and then just take the next step. For example, creating a solid budget, create an emergency fund, provide coverage for yourself and your family, and then start investing. Not only are millennial limited, but many middle-aged people also make this mistake.

Investing

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Here are the 5 few important things to keep in mind before you start investing.

1. Create a Budget

Don’t start investing without a budget with your regular expenses, which most people ignore. Getting an appropriate budget will help achieve the amount of investible surplus after taking into account total household income and expenses. If both members of the same family work, while monthly income is calculated, including the salary of the both spouses. Also, look at rents, interest income, or dividend income, if any.

In terms of costs, including all expenses such as school fees, travel expenses, groceries, EMI loans, excursions, trips/vacations, other expenses, and much more. You can also divide them into monthly, quarterly, semi-annual and annual for greater clarity. This way you can use your spending habits as well as reduce some of them.

You can also use the household budget, thumb rule: the “50-20-30” rule, according to which your 50 per cent of your income should go to living expenses, including groceries, 20% for financial purposes and 30% towards other expenses, including travel and trips.

2. Get Rid of Debt

Any form of debt, whether it is a mortgage or non-constructive debt, such as a personal loan, car loan or even an outstanding credit card balance, plan to get rid of all this first. Most people realize that interest paid on debt is equal to the return on investment. For example, if you earn 11 percent of your investment and pay 11 percent for your loan, the net effect does not create wealth. Therefore, until the debt is fully repaid, keep paying EMI’s on time. Try to repay even your loan early of schedule, especially your mortgage. Experts suggest that the total cost of EMI, including a mortgage, should not exceed 50 percent of the salary at home.

3. Set Goals

Before you start investing, know what you are investing for. Thus, you can distinguish between short-term and long-term goals. You can classify them with different duration and then start investing. For example, if your goal is to save for child higher education, consider its current value, and then increase it to estimate the actual amount needed after, say, 15-18 years. Finding the right requirement will help you invest the right amount, no more and no less.

4. Create an Emergency Fund

This is one of the first and important steps before you start investing. No matter how carefully you manage your money, there may be emergencies, a sudden job loss or uncovered medical expenses that can turn your finances upside down. An emergency fund is needed to meet such events. This fund is created over some time, and not once. For this purpose, it is recommended to park at least six months of household expenses in a bank savings account or a short-term liquidity fund.

5. Get Coverage

we all know that medical expenses are spiking. Therefore, before you start investing, make sure that you get the right coverage for yourself and your family members. This can be either an individual health insurance plan or a family floater health insurance plan. Experts suggest that a person should have insurance coverage at least ten times their income. If you do not have insurance coverage, in case of emergency care, you may need to dip into your investment, which may affect your long-term savings. Note that in the case of financial dependent, try to provide adequate insurance by choosing a net term for your insurance plan.

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