{"id":394,"date":"2018-12-20T07:33:44","date_gmt":"2018-12-20T02:03:44","guid":{"rendered":"https:\/\/srinivesh.in\/blog\/?p=394"},"modified":"2019-02-09T17:23:55","modified_gmt":"2019-02-09T11:53:55","slug":"basics-of-investing-five-steps-before-you-start","status":"publish","type":"post","link":"https:\/\/srinivesh.in\/blog\/basics-of-investing-five-steps-before-you-start\/","title":{"rendered":"BASICS of Investing – Five steps before you start"},"content":{"rendered":"\n\nA lot of people are interested in ‘Investments’\u00a0 to create assets. An often asked question is how to begin investing. In this short article, we look at a sequence of steps in this process, with an easy to remember acronym – BASICS – Budgeting, Annual Cash Flow, Saving for Emergency, Insurance, Corpus calculation, and Start & Stay the course.<\/span>\n\n

Introduction<\/span><\/h3>\n\nAsan Ideas For Wealth is a well-administered closed Facebook group that is focused on personal finance. A lot of people ask questions about where they should invest.\u00a0 The admin, Ashal Jauhari, typically responds by asking if the basics are in place. The basic steps are listed in the pinned post of the group.\u00a0 The group is also famous for many acronyms – the most famous one is covered in the freefincal article here<\/a>. (A longer list is here<\/a>.) In keeping with the tradition of the group, I put together the acronym BASICS that can be used to list the initial steps in investing or financial planning.<\/span>\n\n

B – Budgeting<\/span><\/h3>\n\nTypically, budget refers to a future estimate of expenses and income. One formal definition from Wordnik is: “A systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period.”\u00a0 A good first step in your investment plan is to get an estimate of your income and expenses. And the requirement for that is to actually look at what you have done in the past, or doing now.\u00a0 Take the time – it is not a lot – to list out the major expenses you incur every month.<\/span>\n\n

A – Annual Cash Flow<\/span><\/h3>\n\nLike a business, an individual too needs to have a clear idea of the overall cash flow. A lot of this is covered in the previous step. For most individuals, there are expenses that occur infrequently, even once a year. There could be some income streams too that are annual.\u00a0\u00a0 The second step in the investment journey is to have a clear idea of your cash inflow for the year, and the cash outflow for the year.\u00a0 Inflow – expense outflow gives you the surplus for investing.\u00a0\u00a0 (Once we are done with all the steps, you would change the equation.)<\/span>\n\n

S – Savings for Emergency<\/span><\/h3>\n\nAn emergency corpus is very important in personal finance. There could be many situations that disrupt your income briefly.\u00a0 You should be able to manage the expenses during this period without touching your investment corpus. You can do this by building an emergency corpus. The typical guideline is to set aside a sum that can over 6-12 months of regular expenses. This should be in a reasonably liquid asset like bank deposit, liquid fund, etc.\u00a0\u00a0\u00a0 (Quantum AMC uses the phrase ‘Sacred Money’ for emergency corpus – basically suggesting that you should treat it with a lot of respect and reverence.) A young earner may not have an emergency corpus to begin with and creating one should be the third step.<\/span>\n\n

I – Insurance<\/span><\/h3>\n\nMultiple risks are present in the life of an individual.\u00a0 Insurance is a way to mitigate the risks. An individual would require multiple type of insurances – life insurance, accident cover, health insurance, vehicle insurance, etc.\u00a0 Buying the adequate insurance cover is the fourth step of the process.<\/span>\n\n

C – Corpus estimates for all goals<\/span><\/h3>\n\nI would admit that this is actually a large, long step.\u00a0\u00a0 In this step, the individual needs to clearly list down their financial desires which lead to financial requirements. Some examples are –\u00a0 Specific car in some time, Home purchase, Marriage,\u00a0 Repayment of loans, and so on. These requirements should be turned into specific goals that include all these parameters – purpose of the corpus, amount required, time when it is required.\u00a0 Some examples are:<\/span>\n\n\u20133 lakhs by end of 2021 for trip to Bali<\/span>\n\n\u201310 lakhs by end of 2023 for downpayment for home<\/span>\n\n\u2013\u2018Enough\u2019 money to fund child\u2019s education in a private engineering college<\/span>\n\n– Become a millionaire by 30, and spend the rest of the life in beaches<\/span>\n\nand so on. The required corpus and the timeframe then become the critical inputs to the full financial plan.<\/span>\n\n

S – Start Investing and Stay the course<\/span><\/h3>\n\nActually, after listing the goals, you need to create a comprehensive financial plan. You can do this yourself, with help from unbiased resources. (An excellent collection is the list of Freefincal ebooks<\/a>.) You can also consult with a professional planner to help you. This would be for a fee.\u00a0\u00a0 With the plan in hand, you are finally ready to start investing. And once you start, stay focused and keep to your plan.\u00a0 This step is of course a long one\u00a0 – as long as the time horizon of your plan. It is essential that you stay with the plan. You can, and should, review the progress and make necessary revisions in the plan.<\/span>\n\nAnd that is the BASICS for you.<\/span>\n\n

PostScript:<\/span><\/h4>\n\nYou may be tempted to jump into investing rightaway. This is better than not investing at all. But investing has to be with a purpose and should be guided by a plan. The plan has to take care of the constraints (your income and expenses),\u00a0 address temporary glitches (emergency corpus) and cover the major risks (insurance).\u00a0 This is where the BASICS approach is helpful.<\/span>\n\n \n\n","protected":false},"excerpt":{"rendered":"

A lot of people are interested in ‘Investments’\u00a0 to create assets. An often asked question is how to begin investing. In this short article, we look at a sequence of steps in this process, with an easy to remember acronym Read More<\/a><\/p>\n","protected":false},"author":4,"featured_media":397,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_themeisle_gutenberg_block_has_review":false,"footnotes":""},"categories":[4,7],"tags":[63,64],"class_list":["post-394","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gen","category-plan","tag-budget","tag-investments"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/394","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/comments?post=394"}],"version-history":[{"count":8,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/394\/revisions"}],"predecessor-version":[{"id":503,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/394\/revisions\/503"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/media\/397"}],"wp:attachment":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/media?parent=394"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/categories?post=394"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/tags?post=394"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}