Deciding to start investing is one of the most beneficial things you can do for your financial health. And the earlier you begin investing, the better it is. But there are a few things you should have in place before you get started on your investment journey. Here are five crucial financial moves you should be done with before you start investing:
- Have an emergency fund in place
An amount of money that is easily accessible whenever you need it to meet unanticipated expenses or deal with emergencies, also known as an emergency fund, is something you should have in place before you commit to any investments such as mutual fund investments through the Systematic Investment Plan (SIP) mode. There is a difference between saving vs investing, and saving should always be your first step. An amount that is sufficient to cover about six months of your living expenses should be saved either in your bank savings account or a fixed deposit as your emergency fund.
- Get insurance coverage
Insurance policies are designed in a way to safeguard you and your family financially against the worst events of life including demise, critical illnesses, medical emergencies, accidents, and more. Having a life insurance and health insurance policy in place ensures that your savings are not drained out or your family isn’t pushed into debt when you are met with such contingencies.
- Create a monthly budget
Budgeting allows you to have a clear idea of your cash inflows – income – and cash outflows – expenses. This helps in saving money that you can then invest in different types of mutual funds, stocks, etc., and build wealth. Creating a monthly budget involves setting a limit for each spending category such as rent, groceries, commute, shopping, etc. A budget also helps with reducing discretionary spending and impulse purchases.
- Pay off high-interest debt
If you have long-term loans that you are paying off, such as a home loan, it may not be wise to wait until they are paid off to begin investing. However, paying off high-interest debt such as personal loans and credit card bills should always be your priority before you start focusing on investing.
- Set financial goals
Goal setting is a crucial activity to undertake before you begin investing. Investing without having financial goals in place is like trying to cook a dish without knowing its recipe. Map out your financial goals to understand how much amount you need to meet them, how long you have to meet them, etc. Mutual fund investments are great for goal-based investing as different types of mutual funds help meet different goals. For instance, equity funds are beneficial for meeting long-term goals such as wealth creation.
Once you are through with these important financial tasks, you are set to begin investing. Most beginners prefer to start their investment journey with mutual funds. You can invest in mutual funds online in a quick and convenient manner and pick the fund that best aligns with your goals.