A Layman’s Guide to Personal Finance/Investing

      This blog is written considering people who have elementary knowledge on personal finance but enthusiastic about starting fresh towards the rewarding journey of investment. They should try to follow below simple steps to begin with,

1.       First analyze your income and expenses thoroughly, not only your big-ticket expenses like EMI, but even minute details like laundry expenses which will give you realistic picture how well  are you managing your income and expenditure.

 

2.       Create an emergency fund which should be no less than 3 months’ of your monthly income. This will act as a primary cushion for unemployment or unavoidable circumstances.

 

3.       Buy Family floater plan for you and your dependents even if you have an insurance from your company. This will be very helpful when you are out of job or even for buying individual coverage at a later stage of life.

 

4.       Buy a term insurance plan for your dependent to protect your family from any hardship in future in your absence.

 

5.       Try to increase your investment by increasing your savings but cutting down extra costs. There can be several avenues for investment but one should choose right one based on your age and risk appetite. Never put all the eggs in the same bucket i.e. always invest your money in different kinds of instruments and not in a single one. Diversification reduces risk as well as enhances the chances of higher return. Try to first calculate how much you need to invest for each life goal (marriage, buying home/car etc). Also, with growing age gradually your investment should be moved from high risk to low risk instruments.

 

a)       Fixed Return Investment – FD, RD, KVP, PPF etc. Senior citizens can consider “Senior Citizen Savings Scheme”. Salaried employees can consider increasing their Voluntary PF contribution.

 

b)      Equity/MF – These are the best investment vehicle for long term investment.  As a layman, you can choose 4-5 well diversified Mutual funds/Equity/Balanced and regularly invest through monthly SIP route. Investment can be started from as lows as Rs. 500/-! MF investment to be tracked every year and for consistent non-performance a fund can be switched to a better fund. However, please note that frequent churn of your portfolio may erode the value of investment.

 

c)       Others - Gold/Jewelleray/Real Estate/Antiques

 

6.       Keep yourself updated. As financial instruments are rapidly involving, its important that you get in touch with the different product offering as much as possible. For this you can read personal finance magazines like Outlook Money, browse websites like Investopedia, valueresearch, read newspapers or watch business news.

                                                                                                              (To be Continued.)