3 Things You Must Do Before Starting Your Investment Journey
A proven solid way to build long-term wealth…
The best way to leverage compounding is by not disturbing it ~ Charlie Munger
Investing is one of the most effective ways to grow wealth over time, but it requires preparation and discipline.
As someone who started their investing journey 2.5 years ago, I’ve learned some invaluable lessons. Back then, I had just started my first job, and like most young professionals, I had big dreams but limited financial literacy.
Yet, by following a structured approach, I was able to save for my wedding, build a healthy long-term corpus, and make significant progress toward paying off my education loan.
Preserving and growing money is a whole different ball game from earning it. Your salary provides a base, but financial freedom comes from how you manage and grow that base.
If you’re looking to start investing, here are three critical steps to take before you put your money into the market.
1. Build a 6-Month Emergency Fund
Life is unpredictable. Whether it’s an unexpected job loss, medical emergency, or urgent family commitment, you need a financial cushion to navigate through tough times. This is why building a 6-month emergency fund, equivalent to six times your total monthly expenses, should be your first priority.
For me, this was step one. I aggressively set aside savings for this fund, cutting back on discretionary spending and focusing solely on essentials. The peace of mind it provides is unparalleled. Once you have this safety net, you can invest your surplus without the constant fear of needing that money for immediate emergencies.
Remember, this fund isn’t for investments or splurges. It’s your life raft for the vagaries of life. Keep it in a high-yield savings account or liquid mutual funds for easy access.
2. Invest in Life and Health Insurance
In India, medical inflation is soaring at an annual rate of 14%. Families often face financial ruin due to a single large health expense. That’s why getting comprehensive health insurance and a term life insurance policy is essential before starting your investment journey.
Avoid complex products like ULIPs. They promise both insurance and investment but rarely excel at either. Instead, opt for:
Health Insurance: Covering hospitalization costs ensures you’re protected from medical emergencies.
Term Insurance: Provides financial security for your family in case of an untimely demise.
Early in my career, I was skeptical about paying premiums, thinking I was invincible. But hearing stories of families selling assets to cover medical expenses convinced me otherwise. Now, I sleep better knowing I have a robust insurance plan protecting my family and me.
3. Know the Money You Don’t Need in the Near Term
There’s a lot of generic advice about following the 50–30–20 rule, where 50% of your income goes to needs, 30% to wants, and 20% to savings. While this is a good starting point, personal finance is personal. Blanket rules don’t account for individual goals and circumstances.
Before investing, ask yourself: How much money do I not need in the short term? This surplus can then be strategically allocated for long-term growth.
For instance, I divided my long-term investments among large-cap, mid-cap, and small-cap funds based on my risk tolerance and goals. This diversified approach helped me not only build a growing corpus but also feel confident about my financial future.
Lessons from My Journey
When I started investing, I was juggling multiple priorities — saving for my marriage, paying off an education loan, and building a long-term corpus. What I learned is that preserving and growing money requires a different mindset than simply earning it.
Here’s how I made it work:
I first built my emergency fund, ensuring I was prepared for any curveballs.
I secured my health and future with insurance, knowing I wouldn’t have to dip into savings for unexpected crises.
I identified my surplus and strategically invested it for long-term goals, avoiding impulsive decisions.
The journey hasn’t been without its challenges, but the rewards are worth it. Today, I’m not just saving — I’m building wealth.
Final Thoughts
Before diving into investments, lay a solid foundation. Build an emergency fund, secure yourself with insurance, and know your financial surplus. Once these pillars are in place, you’ll be ready to navigate the world of investing confidently.
Your financial journey is personal, but the principles of preparation and discipline remain universal. Start small, stay consistent, and watch your wealth grow over time.
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