A lot of people who are young and disposable incomes are often found struggling with their finances. This is probably because they are reluctant to tackle money matters as they seem complicated. The other fear is of asking questions so as not to come across as naïve or ignorant. Thus a few bad financial decisions here and that can jeopardise their future.
For instance, youngsters often tend to opt for too much credit without knowing its implications early on in their career. As a result, they end up wrecking their credit profile and find themselves opting for a personal loan for low CIBIL score to repay their debt. As a result, investing to secure one’s financial future takes a backseat.
If you are a youngster facing such dilemmas, you need to know that you are never too young to invest and that there are no stupid questions, when it comes to securing your financial future . While you may have your own set of questions about the financial decisions you have made, here is set of questions that may well serve as a primer before you embark upon an investment journey, so that you do not fall.
What are your long term financial ambitions?
Before you decide to make investments, you need to introspect about your financial future. Ask yourself what you see yourself doing in the medium to long term and what are your financial ambitions at those stages. Once you find the answer to these questions, you need to chalk out a financial plan, preferably with the help of an expert (financial planner). A financial plan should be the first step in your investment journey and should serve as a blueprint for your future financial decisions.
What is your risk profile?
Your risk profile, or how much is your tolerance for bearing losses is the next crucial question to ask. Your risk taking ability is a crucial factor that goes into determining your financial plan. Most youngsters who invest without a plan, seem either too wary of taking risks or are at the other end of the spectrum taking too many risks on their portfolio, thus jeopardising their future. A financial expert may serve as a guide in helping your determine you risk profile and help you in choosing investment products that are in line with your overall financial plan.
How much money to invest?
This may seem like a no brainer, but is really the most important question that will determine your financial future. While there is no generic answer to this question, a ballpark of 5% of your net income is a good place to begin at. You can increase the percentage of your savings as your income increases. The thing to bear in mind is that investments must be made only after your regular expenses and insurance needs are accounted for.
Is your credit health in order?
The other aspect of this is your credit repayment needs. In this day and age, life without credit usage is nearly unthinkable. It is of utmost importance however to use credit judiciously and keep track of your credit records through periodic checks on your CIBIL report and CIBIL score. A blemish free credit report is a barometer of good financial health. It is recommended that you check your credit report at least twice in a year to ensure that your CIBIL score is above the satisfactory level of 750 (out of 900). You can avail of one free credit report in a year from CIBIL to keep a check on your financial health.
How to ensure your money’s safety?
This is a fundamental question that most investors ask of investment advisors. The answer circles back to your risk profile. If you have invested according to your risk profile, choosing the right investment products that come from the stable of trusted brands in financial services, you have little to worry about. Market related instruments are susceptible to risks, but once again if you are in it for the long haul, volatility should be something you should be able take in your stride as it does not erode the value of your investments. On the contrary, if you choose to invest through the SIP or systematic investment route of mutual funds, you will gain from rupee cost averaging. This means you buy more units when the markets are down are less units when markets are up. As a result, you are not impacted by volatility.
Finally, investing to ensure financial security is a matter of making some well thought out decisions according to a financial plan and sticking with it. Further if you maintain a good credit profile, and ensure that you have a satisfactory CIBIL score there are little chances of faltering.
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