After gaining some knowledge about investing, you must be getting excited to actually start investing. You must be wondering what should your first step be, what amount should you get started with. Don’t worry we are here to make your work a bit easier.
1. Analysing your income
First of all, you need to analyse your income and determine how much you can set aside each week or month or quarter, depending upon how frequently you want to invest. The frequency may vary with the investment option that you choose, which we will be talking about further in the blog. To determine how much you can invest you need to thoroughly analyse your incomes and expenditures. There might be a situation where your income is barely enough to cover your expenses, in that case, cut down on your unnecessary expenses and spare some amount to invest. In case you are a student and are receiving pocket money, save some of that amount, and invest it.
2. Setting the right goal
After you analyse your income and determine the amount you can set aside every month, you need to set a goal for your investment. The goal may be to save for your retirement, or to buy a car, a house, or save for higher education, emergency fund, marriage, or even travel. It could be anything. Then you need to determine how much you want your investment to grow, and the time period in which you want it to grow. For example, if you are 25 years old and planning to save for your retirement (assuming you want to retire at 60), you need to calculate how much money you need per month to maintain your current or desired lifestyle and then adjust that for inflation to calculate how much money you would require to maintain that level of lifestyle when you are 60.
3. Exploring various investment option
The next thing you need to do is look for various investment options that meet your requirement. You need to judge an investment on various criteria such as rate of return, the risk involved, liquidity, lock-in period, time horizon, tax treatment (if this seems like too much technical jargon for you then don’t worry, we’ve got you covered). The criteria which you give importance to totally depends on your investment goal. For example, if your investment goal is to plan for your retirement you might want to invest in an option in which the risk is low but it offers steady returns to meet your goal. If you are investing to maintain an emergency fund you would prefer an option with low risk and high liquidity. Investing in stock markets can give you very high returns at the cost of high risks. Your current age also matters as the younger you are the more risk you can afford to take. Certain investments like NPS (National pension scheme) and provident funds can give you certain tax benefits. In a good market real estate can be a good investment but the liquidity is very low.
4. Choosing the right option
After going through various investment options, you need to choose the option which suits you the best. The option that you choose should meet your requirements. It should match your risk appetite, your frequency of investment, offer you a good rate of return along with desirable liquidity. Another thing you should keep in mind is that you should not limit yourself to only one investment. You should always diversify and invest your money in multiple avenues. If you invest in the stock market you can use the ‘Rule of 100 minus your age’ to determine the percentage of equity and debt in your total investments. For example, if you are 30 then 70% (100-30) of your asset allocation should be in equity and rest in debt. (Note: This rule is not a hard and fast rule that needs to be followed every time but this is a tried and tested strategy that works well.)
5. Commit to it
Finally, after you have chosen an investment option as per your requirements you need to commit yourself to it. Get started and once you do, don’t look back. Invest and create more goals and build up a good portfolio. Trust us your investments will help you greatly in your life.