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There is much confusion when it comes to the amount of money that one should spend or invest.
Let us know five key things to do to make your investment journey smoother.
Make a budget of your cash flows: Before taking any step, evaluate your financial conditions, Estimate your total earnings in a month, Take a note of your essential expenses, such as grocery, utility bills., maintenance expenses, rent, etc. Analyse your spendings, whether there are any unnecessary expenses that you can avoid. After keeping a little margin from your balance amount, you may invest the remaining money. It is always advised to start early investment for better capital appreciation.
Define your goals: Everybody has a goal in their life. And they are not one but many which can be classified as short term or long term. There can be a goal to purchase a house, buy a car, go for a tour, etc. One has to estimate fixed expenditures that are likely to be borne in the future, such as children’s education expenses, medical expenses, marriage, etc. Hence, goals can be long term or short term. Therefore, instead of investing random amounts anywhere, set your goals first and create your portfolio based on your future requirements.
Understand investment basics: Before starting to invest your funds, understand the basics of investment. There are various options available to the investor where he can choose to invest based on his requirements. Distribute the investable amount according to your defined investment goals. There are traditional options for saving money, such as fixed deposit, recurring deposit, etc. Also, one can invest in shares or mutual funds. The return on different investment options varies depending on which type of fund and the risk is associated with it. One can now invest regularly by automatic debit through their bank accounts. Also, many financial advisors or agents experienced in the investment field can advise you and manage your portfolio of funds.
Evaluate your risk tolerance profile: Where to invest depends on one’s risk tolerance capacity. The risk-averse investor will put money in those assets with a low or moderate level of risk—for example, debt instruments, fixed deposits, balanced mutual funds, etc. The approach is towards capital preservation or generating regular cash flows. In contrast, the aggressive investor invests most of his portfolio in highly volatile instruments to earn higher returns by taking big risks. Aggressive investors prefer capital appreciation over fixed income securities. Such investors need to keep track of the market because the returns are either too high or too low.
Create an emergency fund: Remember to keep aside some amount for emergency purposes. In case you are short of emergency funds, you may have to break the invested amount held for some other specific purpose. It may lead to the withdrawal of the investment amount without any return or returns below your estimation.
The above points are basics of financial planning that will guide you while starting your investments.