Starting with the right investing habits will give you clarity and confidence. It’s not about being miserly and boring; it’s about creating funds for the things you enjoy doing. Just the way the confidence gained from learning to ride a bicycle helps one move onto to bikes, scooters and eventually cars, it is important to first build a foundation of fundamentally strong investments before moving on to riskier and more complex investment options. Digital platforms make investing easy and you can start with even small sums. But aggressive marketing and a plethora of options can be overwhelming.
So, cut out the noise and start simple. Here’s how.
1) Invest before you spend: Investing what is left after expenses is a sure shot way to end up with zero savings. Start with automating your investment allocation before you spend. Being able to save at least 15-30 per cent of your post-tax income is ideal but if this is difficult, you can start with as low as Rs1,000 per month. Make a simple budget covering saving, investing and spending, and stick to it. Stay clear of the aggressive marketing and temptations that come from credit card and buy now pay later (BNPL) schemes.
2) Protect before you invest: Take life insurance through low-cost term insurance only if you have dependents. High-cost insurance plans hard sold as investments with long-term lock-ins are best avoided as you get started. Given the high commissions involved in insurance policies, the plans tend to get pushed or mis-sold under the guise of investment plans. However, a medical insurance plan for yourself and your parents, if they are dependent on you, is good to have. Medical expenses can be a big disruptor of family finances in today’s uncertain world.
3) Ignore peer pressure: Fear of missing out (FOMO) and peer pressure can induce many to start investing in shares directly on the basis of tips or buying into options such as crypto currencies without having a proper foundation. However, given the higher risks in asset classes such as direct equity (shares) and crypto-currencies, you could face heavy losses. If you must invest, then limit such investments to a small 5-10 per cent of your investable amount as a way to explore beyond the core of a diversified mutual fund portfolio.
4) Set the right goals: Your first milestones could be around building an emergency kitty covering 6-9 months of your lifestyle expenses and also saving and building your first few lakhs. The confidence and satisfaction that comes from setting a goal and achieving it with a disciplined savings plan is always a great feeling.
5) Invest in building financial knowledge: Well-regulated financial products like mutual funds are a great way to start off and online portals like mutualfundssahihai.com help you understand the basics of getting started. Understanding the practical application of important concepts such as risk profile, budgeting, inflation, asset allocation and dealing with market falls/volatility will be of huge help.