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5 Steps To Follow Before Investing Money

5 Steps To Follow Before Investing Money
5 Steps To Follow Before Investing Money
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Kumar Sunil

Dreamer & Enthusiast

Creative. One word says it all for Sunil. A engineer, an enthusiastic and conscientious Information Technology consultant by profession, Sunil shares a special interest with entrepreneurship and lifestyle.

Correct me if I am wrong, but in today’s world, for a financially broken person, survival is hard. Doing overtime to make some more money, is not an option for everyone. That is why, people look for investment plans.

Investing your hard earned money is not an easy decision. One wrong calculation means your bankruptcy. Being in the industry for last 6 years, I have seen countless people losing their mental state after making a wrong decision of putting their lifetime’s savings in bogus investment plans. Investment plans are complex and decoding every single clause is not an easy task. Here, I am not suggesting to enroll yourself for some financial planning classes before buying an investment. But, there is no harm in taking some preliminary precautions. Here are 5 steps to follow before investing money.

Put your finances in order

Are you one of those jerks who start investing without analyzing their financial situation?

Don’t do this because this is going to be like jumping into the pool without having any idea of swimming.

Always evaluate your financial situation before you invest. Pen down everything; how much you earn, how much can you spend, and how much you need to save to invest.

The best practice is – starting with small amounts. The idea is keeping the risk to the minimum, in the beginning as you are not very much aware of the ups-and-downs of the policy.

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Learn the basics

As I said earlier, there is no need to be an expert in finance. However, fundamental knowledge about your investment plan is mandatory. This clarity about fundamentals will save you from making any wrong decisions.

By fundamental knowledge, I mean – learn the difference between the main financial instruments, shares, bonds, investment funds, certificates of deposit, etc.

Improve your acquaintance about basic principles of investment such as asset allocation and investment diversification to reduce risk, which ensure good results.

Determine your investment objectives

Once you are clear about the available amount for investment, you need to work on the objectives of your investment; what are you expecting from that investment.

While all investors want to make money, your goals must be specific. What is best for you depends on various factors like age, time of life, where you are and what are your needs.

Determine your risk profile

When you see a decrease in the total value of your investments, you get upset. There is nothing like losing money.

Therefore, it is better to work on risk aspects before investing. Do some math and try to find out the closest amount that you can risk for the said investment.

Like investment objective, your risk profile varies by age, income and your financial goals. Find out how big and for how long can you tolerate the risk before investing.

Identify your investment style

When it is about investment, there are investors who prefer speculation, while others prefer long-term investments. After finalizing your investment objectives and assessing risks, you need to see what kind of style you are compatible with.

Higher the risk, higher the profit, they say. If you think you want to invest in cars, but you are not very much ready for the taking higher risks, it is better to approach a conservative strategy.

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A conservative strategy involves investing in financial instruments with relatively low incomes and with low risk, instead of an aggressive strategy of risk-taking to achieve high returns on investment.

So, these are my 5 steps to follow before investing money. Do you have any more to suggest, please let me know through the comments section below.