When we begin making investments, it is important to invest wisely in profitable investment avenues. Here’s a one-stop guide on how to build a comprehensive financial portfolio.
A complete financial portfolio?
Confused? Well, a complete financial portfolio is one that has a fully-funded retirement savings plan, has at least a 6-month emergency fund and investments in a well-diversified portfolio with intelligent asset allocation.
Additional Reading: How Important Is A Well-Diversified Portfolio
Before you begin
The first thing you need to do is make a list. Get an idea of all the assets you own – cars, stocks, Mutual Funds, cash reserves, Savings Accounts, etc. You should also take stock of your liabilities as well. This exercise will help you understand your net worth. It will serve as the foundation on which you can build your financial future.
Be committed to change
Building a complete financial portfolio is rarely accomplished in a short time. It usually is a long-term process that takes several years. Be committed to your financial goals and stay on track. You will surely succeed.
Additional Reading: Financial Goals To Hit Before The Big Three-Oh!
Contribute to your retirement fund
Aim to match your employer’s contribution to your Employee Provident Fund. If you contribute to your Employee Provident Fund, you can stand to gain more money when you put your feet up.
Additional Reading: Your Way To Retirement
Don’t hold on to Credit Card debt
Simply put, trying to invest if you already have Credit Card debt on your hands is not a good idea. Your first priority must be to pay off your Credit Card dues, or else it will eat into your income and savings. Prioritise your liabilities by ranking them based on the interest rate applicable on each of them, if any.
You should also decide on an amount that you can comfortably set aside towards debt reduction every month. When you have paid off the debt on your Credit Card, try to avoid cancelling the card. This will reduce your Credit Score. Keep the Credit Card tucked away safely to avoid using it too often. Also, if you get access to any extra money, use it to help clear your debts sooner.
Additional Reading: The Stack Method: An Effective And Speedy Way To Clear Your Debts
Buy a house
Another important step towards achieving a complete financial portfolio is to consider purchasing a house of your own instead of paying rent every month.
By buying a house, you are essentially converting the amount you spend on rent into a lucrative investment choice. Additionally, the interest payable on your Home Loan is eligible to be claimed as tax deductions up to an amount of Rs. 1,50,000 under Section 80C of the Income Tax Act.
Remember, owning a home includes various expenses such as Home Insurance, Property Tax, home renovation and repairs and various utility bills among others.
Additional Reading: Should I Buy A House Or Continue Staying On Rent?
Build an emergency fund
Try building an emergency fund that should ideally be used as a cash reserve to finance you in case of an emergency or a tough financial situation. Your emergency fund should be worth at least 6 months of your take-home salary.
This fund should be sufficient for loan and mortgage payments, your insurance premiums, groceries and utility bills among other unplanned expenses.
Avoid investing your emergency fund
The objective behind establishing an emergency fund is to keep your money safe and to have access to funds when you absolutely need it. If you put your emergency fund money into Debt Mutual Funds, your money will be locked in for at least one year, which is the widely recommended investment tenure for Short Term Debt Funds.
You could consider stashing your emergency fund in Liquid Funds. This allows you higher flexibility with the investment tenure and gives you access to your money within 2 working days if you ever have need of it.
Additional Reading: How To Pick Good Mutual Funds
Consider other investment choices
If you have begun investing after paying off your Credit Card debts and any other financial liabilities you may have; good job!
Always remember there are a wide variety of investment options to cater to the requirements of every type of investor, whether they are risk averse or adventurous with their investments. From Short Term Debt Funds to Equity Mutual Funds, there are a plethora of choices available to you.
Additional Reading: Introduction To Debt Funds
Once you lay a foundation for your investments, it is essential that you continue to invest wisely, make intelligent investment decisions and be disciplined about your investments. Remember, the easiest way to create long-term wealth is by making the right investments.
Are you ready to begin investing wisely?