Before making an investment a common question that everyone asks themselves is, “How much should I invest?” To be honest, there is no fixed amount that can be invested which guarantees excellent results. But there are certain habits you can inculcate to increase your investment capacity, that in turn, can increase your chances of making good investments.
Pay Yourself First
There is a rule in personal finance that says “Pay yourself first”. In other words, secure your own finances before making any investments. Make sure you are not spending unnecessarily and have an emergency fund in place for rainy days. Financial markets are volatile and unpredictable so you should have some savings to provide you with a cushion in the rare chance something catastrophic goes wrong. To ensure you have a sufficient amount of savings it is not important how much you make but rather how you spend, this is where budgeting comes in. Budgeting is the art of balancing your expenses. It is not that you only spend your money on stuff you need and don’t enjoy the money you are making, but rather observing your spending patterns and removing the ones that you do not actually find rewarding.
Clear your Debt
The second thing you need to consider is the debt you currently are carrying, try to pay off as much of it as you can before making investments. High-interest debt like credit card debt can seriously affect your financial well-being adversely by slowly chipping away at your returns. Therefore, to see the full potential of your investments try to clear off all your debt.
Check your Expenses
Consider your expenses. Before making investment consider your current expenses and any expenses that might arise in the future, like, children’s education, marriage, etc. After determining your total current and future expenses you will have a clear idea as to how much you can invest. Also take into account any loans that you have taken on, if your loan tenure is coming to an end and you have managed well while paying off your EMIs, it might be a good idea to invest the EMI amount in a financial instrument.
Do your homework
Research before you invest. Before making your first investment do some research on the market and see what is doing well. Consult a Financial Advisor to get some tips and insight into the market so that you can make a well-informed decision. There are a lot of instruments in the market, each have their pros and cons, determine which ones suit you the most.
Define your Objectives
Have an objective. This is one of the most important things to keep in mind before making any investment. What is the objective of putting your money into an investment? If you have a clear objective or goal, the financial discipline to invest regularly becomes much easier as you have a clear picture of what you want.