You must have heard that making investments for quick or long-term returns is a good financial behavior. However, not everyone understands if they are prepared to invest or where and why they should invest. At other times you may be encouraged to invest financially into something without having complete knowledge about the investment asset, just because your peers are doing so.
Investments are a very important aspect of your financial life, and there must be no mistake made about it. In case you do your groundwork, you can invest wisely. Here are 7 questions that will let you know if you are prepared to make investments or not.
Related Article :- 5 Financial Planning Mistakes To Avoid While Investing – Fintoo Blog
What is Your Net Worth?
Net worth is the total value of assets, monetary savings, and valuables etc such as car, home, gold, and balances in bank accounts, investments made- minus the total of all debts you have, like credit cards, student loans, mortgage and so forth. Thus, if you are only concerned with your account balance, it is not enough to consider for investments.
You must have a long-term perspective as to how you can grow your net worth, which can in turn add value to your finances.
Did You Pay Off High-interest Debit and Credit Card Bills?
Debts, especially those with higher interest rates drain your finances. Personal loans and credit card loans are the most expensive. If you have a bad credit score, the loans will carry a greater interest rate. Thus, a major chunk of your finances will be directed towards completing the payments, which you must do as soon as possible.
You can then start investing than being indebted for an extended period. Paying off debts automatically increases your net worth.
What Are Your Worst Personal Spending Habits?
Your income minus the spending leaves an amount, which is the money you can use for investments. The lesser is the spending, more are the monetary resources left to turn into investments. While you cannot curtail essential expenditures, such as paying your child’s fees, paying off loans, electricity bill, etc, you can certainly avoid splurging in areas, which you can stay off from spendings- such as buying that extra coffee or extravagant meal, or getting n-number of gifts for others, and leaving out almost nothing or a meager amount for investment.
Do You Understand Your Investment Options Well?
Before considering different investment options to put your money in, you should understand these choices well. Do you have knowledge about bonds, precious metals, real estate, stocks, ETFs, index funds, mutual funds and similar investments?
If these are few things you are unsure about, then it is recommended to approach a financial planner who can help you know the investment options and draw a realistic roadmap as to how much you should invest and where.
What Are Your Big Life Goals?
When anyone asks you about your big life goals, you may have a long list. However, you need to set these goals on priority and start working towards it early as soon as you start drawing an income. Most of us have goals like- completing education, setting a great career, owning a house, car, getting married, and have plenty of funds for retirement.
All these goals require monetary support. By chalking out goals on priority, you can systematically plan spending, investments and savings.
Do You Have a Cash Emergency Fund?
As the saying goes, “Life if not a bed of roses”, we cannot be sure that sudden disruptions will not come in life. You may have great investment plans, but what if you get laid off from the job or a natural disaster damages your house? In these situations, many turn taking credit card loans or bank loans, which should be the last resort.
A better way to handle financial disruptions is to create a cash emergency fund for at least 6 to 8 months of your expenses so that, you have sufficient monetary fund to last until recovering from the economic shock than getting into debt and liquidating your investments.
Do You Include Your Spouse in Your Financial Plans?
If you are married, then any investment plan made must be discussed in full with your spouse. What is your goal? Why do you need an investment plan? How exactly will investments be made? Where are the accounts and on whose name are these? Is this something you both agree on?
Does the benefit at the end hold value for both? Does the investment create hurdles for any of you? These are some questions to answer before making investments after your marriage.
It is surprising that many of us dive into investing without having a list of priorities or a proper financial plan. While we cannot dictate life by specific rules, it is better to be ready for investments in an articulated manner, and you can do so by following the above-mentioned steps.