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Things to have before you start investing

Things to have before you start investing include building an emergency fund, taking life insurance for yourself, health insurance for the entire family, and insuring all assets.
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Laying the foundation to achieve financial goals

It is important for any individual to start goal-based investment planning. But, it is even more important to lay a good foundation before doing that. If the foundation is strong, then the individual can always build on it and excel. Here is a list of things to have before you start investing.

  • Emergency fund

Putting an emergency fund in place is the first thing that an individual should do. The emergency fund can help in overcoming an unexpected or unplanned financial emergency. Some of these can include sudden hospitalisation of self or a family member, loss of job, delay in salary, etc. The emergency fund should ideally be equivalent to 3 to 6 months of income. 

While what we have mentioned above is an ideal scenario. Depending on your situation, you can decide on the emergency fund corpus. You can invest the emergency fund money in a liquid mutual fund so that the money is safe, and can be assessed at any time.

  • Life insurance for earning members

Once you have the emergency fund in place, the next thing to do is buy life insurance for yourself. If your spouse is also working then you should buy life insurance for both. You should ideally buy a term life insurance cover as it can provide a large sum assured at a low cost. You can decide the sum assured amount in a manner that is equivalent to a sum of your future income till your retirement, the money required for your financial goals (building a fund for a child’s higher education and marriage, spouse’s retirement, etc.) and financial liabilities (home loan, vehicle loan, or any other loans).

  • Health insurance for the entire family

During the Covid-19 pandemic, a lot of people who suffered from the Covid-19 virus had to be hospitalised. In the case of many people, the hospitalisation bill ran into lakhs of Rupees. In the case of people who did not have health insurance, the huge hospitalisation bill wiped out the entire savings and some people even had to take personal loans. Many families got pushed into poverty due to the steep hospitalisation bills. The pandemic has made many people realise the importance of health insurance.

  • General insurance for all assets

The next step is to cover all your assets with general insurance. You should make sure your house and essential items are insured. You should also make sure your vehicle/s is/are insured with an adequate amount of insurance. If you have any other valuable assets, you should insure them also.

  • Repayment of high-cost debt

Once the emergency fund is built and insurance is in place, you should shift your focus towards repaying high-cost loans, if any. If you have any high interest-bearing credit card dues or personal loans, you should make sure you repay them first before you start investing for your financial goals. Credit card companies charge interest in the range of 30 – 45% p.a. When you have such high-cost liabilities, investing for goals does not make sense. So, make sure you repay or pre-pay high-cost loans before you start investing.

  • Making a cash flow statement

Once you have cleared high-cost liabilities, you should make a cash flow statement. In a cash flow statement, you have to record all the cash inflows (salary income, interest income, dividend income, rent received, etc.) on one side. On the other side, you have to record all cash outflows (regular family expenses, rent paid, school fees, EMIs, existing investments, etc). The difference between the total cash inflows and cash outflows will give you your cash flow position at the end of the month. 

If your cash inflows are more than your cash outflows, then you have a surplus (or positive cash flow). This is a good situation to be in and you can use the surplus money to invest for your financial goals. If your cash outflows are more than your cash inflows, then you have a deficit (or negative cash flow). This is a worrisome situation to be in. It means you are spending more than what you are earning, leaving you with no money to invest for your financial goals. In such a situation, you should either look at increasing your income or reducing your expenses or both, so that you can wipe out the deficit and generate surplus for investing for your financial goals.

  • Making goal plans

In the above step, you have made a cash flow statement and calculated the surplus that you have for investing for your financial goals. Now, the next step is to identify your goals. You should then classify them as financial goals and other goals. In this article, we will focus only on financial goals. You should quantify the financial goals, make an investment plan for each goal to figure you the amount you need to invest for each goal to achieve it.

  • Gaining knowledge of personal finance

Before you start investing, you should try and gain knowledge about personal finance. A good place to start would be the Glide Invest blog, YouTube videos, podcasts, etc. The more knowledge you gain, the better investment decisions you will be able to make. Gaining personal finance knowledge is an ongoing process and it should continue while you are investing towards your financial goals.

  • Get your spouse and family members on-board

Before you start investing in your financial goals, you should discuss this with your spouse and other family members. They should be aware of the process and be on board with your plans. They should be aware of which financial goals you are investing in, how and when will they be achieved. When you have their in-principal approval and support, the financial planning journey becomes a lot smoother.

  • Consulting a financial advisor

In the 21st century technology has played a vital role in shaping up how we conduct our financial affairs. Today you can just open up your phone and tap a few buttons to plan and systematically invest towards your financial goals, with Glide Invest. You will get guidance for:

  1. A personalised risk profile assessment
  2. Identifying your financial goals
  3. Appropriate asset allocation
  4. Making a financial plan for each goal
  5. Automating the financial plan
  6. Review and analysis of your financial plan 
  7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App now from Google Play Store or Apple App Store and get started.

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