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6 Things to Do Before You Start Investing

Investing smartly is not an easy task as it may seem. People get really excited about seeing the rising numbers in the stock and want to invest all of their money. Basically what they have in mind is to make their money work for them. Well, actually, it is not how it works. To invest, you need to be financially stable. You need to have some knowledge and mindset of investing. And to be honest, it is not that difficult either. You just need to be self-aware of your finances and learn a little. All this is quite possible with some time and effort.

We may not be able to manage your investment portfolio during a volatile market but are here to give you some tools to begin your investment smartly. Here are six of the most important steps you need to take before investing.

Financial Checkup

Letโ€™s be honest. To start investing you first need to have a clear picture of your financial standing. The first and foremost step is to write down your budget. Make a plan of your spending details which includes utility bills, groceries, repair, entertainment etc. Along with that, an income chart which shows income, rental income if any, interest on deposits etc. This helps you make a financial plan and arrive on an investable amount after taking into account both your expenses and income.

Is there any debt standing? Clear it immediately. People want to start investing and to them, it seems like a fairy tale but with having that credit card to pay off, it is not such a good idea. Paying off that credit card bill will increase your net worth because you wonโ€™t be paying any interest each time along with the payment. Get a review of your credits. Look for the best credit monitoring services.

Ensure Protection

Before starting to invest, you must protect your existing assets. This includes your health costs, house, car etc. For that, you need to use the risk management tool called insurance. You may never predict the future and know what it holds for you whether it is an accident, serious illness or job loss. For long term planning, insurance is necessary.     

Emergency Cash

As discussed above we cannot predict the future, what if you lose your job and are now out of money? Maybe your heater broke down or in need of repairing.

You need to think ahead of possible issues that may arise. And for all those emergencies you need to have some cash stacked up in your savings account. Financial advisors recommend about five to six months of living expenses as savings. Without an emergency fund, it becomes really hard to survive these draughts in your life.

Set Your Goals Straight

Decide! You must set your goals straight. Before you invest, you must be clear on the purpose of your investment. Do you want to live off that investment or is it a short term investment that is for maybe buying a house? If it is a long term plan then the stock market is the place for you but if itโ€™s for something that needs to be achieved in a few years, well then you need to rethink about the stock market.

So before starting you need to think about your life goals and that too in agreement with your spouse. If you are married, your life goals need to be discussed with your partner. Do both of you agree? Are they in accordance with your values? You are headed for trouble if you have not discussed this investment account with your spouse.

Investment Options

Before you step into this investment business, you need to study and understand it in detail. You should know what options you have and how to use them for your benefit. Do you even know how to compare two investment options? Do you have any idea about real estate, mutual funds, stocks, and bonds? 

These terms need to be understood so that you do not have to rely on your investment advisor wholly. To depend on him solely is usually a bad move. Just remember, for a better understanding of investment, you need those skills and what better move than reading some good books on investment.

Also, work on your social circle. Be around people who are financially smart rather than bragging about their latest expenditures. Join investment groups to gain knowledge on the subject.

Control Your Desires

This is one of the basic tools that an investor requires. It may be the last thing to do on my list but it holds a great significance. If you do not have control over your desires and spend impulsively without thinking over then you lack the most fundamental understanding of investment. It is human nature to fulfill our desires but as an investor, you need to judge your wants patiently and then make the move.

TUT Staff

Written by TUT Staff

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