5 Things You Need to Do Before Investing Your Money

This is the first step before you plan any investments – prepare a budget and manage expenses. You need to calculate your investible surplus, after accounting for your household income and all expenses. For budgeting, list down all your sources of revenue, monthly costs and allocate your money wisely. Include everything from groceries to gas expenditure and loan EMIs. Break down your quarterly, half-yearly or annual figures to a monthly basis for a clearer view and analysis. This will help you manage monthly expenses easily.

If you have taken a personal loan, the interest rate may vary depending on your credit score from high single digit to high double digits. On the other hand, credit cards may charge you even higher interest rates on your outstanding unpaid balance after the free credit period and may levy a penalty too.

If the profits you get on your investments are less than the interest you pay on your loans/unpaid credit card balances, it's certainly not a good investment. In other words, if your returns are 12% and you are paying 14% interest on a loan, you are losing money. Instead of investing, the money could be used to pay off debts so that you become debt-free. ¹

It is always a good idea to have life goals planned before you begin to save for them. It will simply make things easier.

Make a list of your objectives and prepare a plan to attain each one. Remember that goal setting is just one aspect of the whole financial planning process, which includes achieving life's objectives via financial management.

Everyone's risk tolerance varies depending on their age, financial situation, priorities, and other factors. You must first identify your risk sensitivity, before investing in equity or gold or any other asset class. Pick your investment options based on your profile because different investment options have varying degrees of risk. For example, an individual with sufficient risk tolerance might invest in stocks, mutual funds, or real estate. On the other hand, an individual with a lower risk appetite might choose low-risk investment options like fixed deposits, PPF or bonds. 

As you move towards financial security, you should thoroughly understand how to plan, prepare and then invest your money. When it comes to investment planning, most people approach financial advisors for professional advice and strategies on how to be prepared before they begin their investment journey.