5 Things You Must Do Even Before You Start Investing

Even before one starts investing, there are quite a few things that one needs to fix about one’s money matters. Investing, after all, is only a part of the financial planning process and not the beginning. Even before a rupee is invested, there are several things that need to be done in the background. Here are those few important things to consider even before one starts to write a cheque to make an investment.

HAVE A HOUSEHOLD BUDGET IN PLACE

The first step is to have a household budget in place. It helps you to arrive at the amount of investible surplus after taking into account the total household income and expenses. Budgeting will require you to write down the various sources of your income. This includes salary including that from spouse, any rental income, interest on deposits, dividends, etc. Thereafter, make a list of expenses incurred in a month and allocate money to each of these heads. Include everything, from the grocery bill to the fuel expenses to the EMI of the car. For a better picture, break down the quarterly, half-yearly or annual income and expenses to monthly basis.

Once you start following a household budget, it can be a useful tool in financial planning. In about two -3 months, you will notice a pattern in your spending which will tell you where you need to cut down or how you can get more out of your spending habits. Your savings pattern will allow you to draw up plans for short-term and longterm financial goals, such as a vacation, a new car or your child’s education.

The budget check: If you want to check whether you are doing fine with your household budget, here a help. It’s the 5020-30 thumb rule, i.e., 50 per cent of your income should go towards living expenses including groceries; 20 per cent towards savings for your short, medium, long-term goals; and 30 per cent towards spending, including outing, food and travel. The idea is to create outflow buckets for better control. Individuals may tweak the percentage according to their age, circumstances, etc, i.e. can keep a 50-30-20 rule. The idea is to follow the same rule for long and stick to a plan.

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