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Even before you start investing, there are a few things that you need to fix with regards to your money matters. Investing, after all, is only a part of the financial planning process and not the beginning. Here are a few important things you should do before you start to make your investments.
Most of us ignore its importance and follow an ad-hoc approach in meeting expenses. Get a proper household budget in place as it will help you to arrive at the amount of investible surplus after taking into account the total household income and expenses. While estimating monthly income, include the salary of both spouses. In addition, look at rent, dividend, and interest income, if any. On the expenses side, write down the expense head such as groceries, school fees, transport cost, loan EMIs. Food and outings, travel, miscellaneous etc. For better clarity, segregate them into monthly, quarterly, half-yearly and on annual basis.
Unconstructive loans such as personal loans, credit card, car loans etc and constructive loans such as home loans are the forms of debt. A home loan comes at around 9 percent while personal loans could range between 13 percent and 18 percent per annum. The interest rate one pays on the outstanding balance of credit cards (after rolling-over) is in the range of 36-48 percent per annum.
Before you make any investing decision, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before.
The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional. There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.
Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.
It is always better and easier to plan one’s journey after deciding the destination. A planned itinerary certainly helps in making an efficient and optimum use of the available resources. Similarly, life goals need to be identified upfront before one starts saving towards them. Set your goals in sight and create a separate plan to achieve each one of them. Remember, goal-setting is only a part of the overall financial planning process which entails meeting life’s goals through proper management of finances.
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