How will you benefit from investing early in mutual funds?

For a secure and healthy future, setting life goals and maintaining financial stability are two key elements. The most rudimentary way of understanding financial stability would be to say that keep your assets high to moderate and liabilities low to nil. Now, all this can be accomplished by carefully choosing investments with good returns, cutting down on frivolous expenses, striking a balance between the things that you need and the things that you desire, keeping a diversified portfolio. The aforementioned are certain golden rules of a meticulous financial planning which have been discussed at length below.

Draw a monthly budget and a yearly budget

Draw an exhaustive monthly budget defining every kind of expense ranging from variable, fixed and discretionary expenses that you incur every month. An individual has to show some constructive rigour and persistence in order to observe this practice. Further, another important practice is to create a yearly budget including all the probable intermittent expenses. Intermittent expenditures are those that are incurred less often such as buying a house or car, etc. Therefore, yearly budgets are important in order to have a clear idea as to how much you need to save up each month in order to be able to accomplish your expense. Finally, it is highly advised that once you create a budget ensure that you stick to it every month.

Make a diversified investment portfolio

One golden rule before engaging in investments is “do not put all your eggs in one basket”. In terms of financial planning, it can be translated to say that make sure that you invest in a variety of plans, schemes and investment options. The most rudimentary rationale behind this is that in case one of your investment fails, the others will be still be there to offset the loss. Your investments must consist of direct equity, equity mutual funds, debt mutual funds, public provident fund, fixed deposits in bank, gold, etc. This is not the rule of thumb but just an ideal looking portfolio. Your asset allocation can be drawn up easily by taking into account three things: where to invest, how to invest and how much to invest.

It is highly recommended to begin investing at a young age as with increasing age the risk appetite reduces.

Create an emergency fund

Emergency funds have great significance and that has become pretty clear after the crisis of Covid-19 hit every individual across the globe. The size of your emergency fund would be contingent on certain factors such as income, lifestyle, number of dependants, debt, etc. The rule of thumb to be followed while saving for an emergency fund is to pay your future self the amount for all your fixed and variable expenses incurred each month for the next 6-7 months. Ideally, you may also think of parking your money in a short term debt fund which can be drawn at any moment.

Financial planning can keep on evolving at every event of a person’s life and it should be dynamic. Fulfilling life goals while maintaining life time financial stability can reap you peace and a desirable way of life.