Your savings are directly related to your spending habits. Sit down and audit your expenditure. Find out if you can cut some spending on unnecessary things.
CHECK YOUR SAVINGS
How much of your income do you save? 30%? 70%? You may even have some money lying idle in your bank accounts. All of this can be your initial investment corpus
If your current financial situation is your straightpoint, your goal is the end point. This helps you figure how to invest, how long to remain invested, where to invest and how much money you want to earn in this period.
GET YOUR INVESTMENT PROFILE
Before you start investing, you need to understand your own needs and limitations. This is part of your investment profi le - what are your liquidity needs? Are there any dependents? Do you have other constraints? All these are very pertinent questions and directly affect your investments.
KNOW YOUR RISK-TAKING ABILITY
Every investment comes with its own risk. Understand how much risk you are willing to and are capable of taking. Then, and only then, can you make an investment plan. For example, if you can’t take much risk, then your portfolio should not contain many stocks. This affects your overall returns too.
MAKE A PLAN
You have all your ingredients ready. It’s time to make the actual investment plan. Depending on the investment duration, your risk profi le and existing corpus, you can chalk out a plan to build your portfolio. For example, you could decide to allocate 20% of your monthly savings in Debt MFs, 40% in Equity MFs and the remaining 40% in tax-savings instrument like PPFs.
TAKE BABY STEPS
It is not enough to simply plan. Implementation is important. However, it is important to start with baby steps – buy one or two stocks or Mutual Funds fi rst and see how that works for you. This way, you can minimise any potential loss.
INCREASE YOUR INVESTMENTS
Once you have tried and tested different investment options, go for the one that best suits you and slowly increase your investments over time. If you invest in huge lump-sums, you could probably not have enough liquid money on hand to meet emergencies.
BUILD EMERGENCY FUND
Not all investments are liquid available at the drop of a hat. Some have lock-in periods of three-fi ve years, during which time you may not be able to sell it off. This is why you need to build a separate emergency fund. This should contain enough money to meet emergencies like health issues or job loss.
MONITOR AND RE-JIG REGULARLY
Change is the only permanent factor in life. You need to monitor your investments regularly to see if they are working for you. For example, if interest rates are expected to fall, you could increase allocations to Debt to make the most money.