Top 6 Steps Salaried Person Should Take Before Investing
Saving and investing funds to fulfill your financial goals is a challenging task especially for salaried persons with limited funds and more expenses. While choosing an investment avenue, it is necessary to align your own risk profile and risks involved in the investment avenue.
Moreover, it is essential to be cognizant about the end goal that one wants to achieve. Often, the time delay causes a loss in terms of duration during which money could have grown. Lost time can’t be recovered, but better management of money can be initiated to make the best use of available opportunities. However, money management may make you anxious. So, here are the steps you need to work on before investing:
1. Balance income and expenses to set a monthly budget
The simple principle of budgeting makes you bring balance in your income and expenses. Try to limit the expenses revolving around your lifestyle by up to 60% of your income. It will be easy once you track and note down your income and expenses and arrange them on a priority basis. It does not mean to become very restrictive. Just consider EMIs, electricity bills, internet bills, phone bills, travel expenses, rental expenses, shopping, etc.
2. Cope up with expenses and develop a habit of consistent saving
Budgeting has given you a balanced income-expense ratio, maybe after several attempts. Now you need to find avoidable expenses. You will find a few expenses that can easily be reduced or avoided such as dining out, shopping just for craving, unnecessary traveling etc. After coping up with various expenses for the first few months, slowly develop a habit of savings. You can always keep aside a sum of money for your impulsive purchases.
3. Set your financial goals
Set your long-term and short-term goals. Whenever you find savings difficult, just think about your goals. If you have learned to live within the limits and are disciplined in savings today, you will be able to make your future well secured. The goal should be clear and you should be able to measure it. Rather than saying, “I want to save money for retiring early”, you can make a goal, “I want to save Rs. 1.5 Crore in the next 7 years so that I am able to retire early, by the time I am 38 years old.”
4. Align investment plan and savings plan
Park your funds in those financial instruments that offer lock-in flexibility which is similar to your financial goals. Let’s say you want to get married in 4 years, then you need an investment instrument with a four-year lock-in. Hence, your investment plan should also align with your savings plan. If you want to invest in stocks, you will need a Demat account. It is an account that helps you get started with trading online.
5. Emergency Funds
From your savings, keep apart an emergency fund before investing to hedge yourself against uncertainties and premature withdrawal of your investments. Many of us ignore the importance of emergency funds. An emergency fund will give you some buffer time. It will help you remain debt-free. You should review this corpus from time to time.
6. Sound Credit History
Keep a check on your credit card usage also and be disciplined in repaying debts. Because you are rated on your financial credibility. In times of need, banks may decline your loan application because of your bad behavior towards debt payments. Pay your bills on time.
If you have enough time, you can manage your investment portfolio by yourself. But, if you don’t have time and don’t know much about the Stock Market, you can get assistance from an investment advisor. To invest in the stock market, you can open a Demat account online. Documents required for a Demat account are PAN card, Identity Proof, Residence proof, and passport size photograph.
With a Demat and Trading Account, you can invest in equity, derivatives, and invest in Initial Public Offerings (IPOs). Investing in IPOs is one of the ways investors try to grow their wealth. However, before investing, one needs to know the fundamentals of the company. With an understanding of the company’s basics, you can understand whether the stock is undervalued or overvalued once it gets listed.