Diversification and Money Management before investing in stock market.

After the Covid-19 pandemic focus of people towards the stock market has increased. But blindly everyone run behind the stock market without learning the truth. We invest in stock market for money. But we invest without any research and money management. Before we start trading or investing money management and its diversification is very important. So, today we will learn about that.

Table of Content :

• What is Money Management
• How to do this
• How it will reduce the risk
• Points to focus in the Stock Market
• Conclusion

Money Management is the method or way by which we handle our finances. It is all from budgeting, investing to saving and setting goals. Every individual should do his/her money management to make life secure for himself/herself and family by putting money in diversified assets classes.
But if you want to do it seriously then lets discuss some point.

How you can begin Money Management :

Emergency Fund:-
As a beginner first of all have some diversification in some asset class before trying direct equity. Have emergency fund equal to six times of monthly salary. If you are not a salaried person then it can be equal to 10X of your monthly expenses. This saved money helps you at the time of any emergency. By having this you will not have to touch your investments in bad times. Otherwise may be in hurry you will sell all securities in loss.
Also it take 3–5 days totally to have all money in your bank account. That’s why this is important.

Insurance :-
Have term insurance to save yourself from big wealth destruction and backup for family. God make you live long but if any miss-happening happens then Term insurance helps your family to survive. It should be 20–25 times of your total annual earnings for a good corpus with low EMI. Mostly lower middle class people avoid it due to the reason that if nothing happen they will get nothing and their money will get waste. But it is not for happening something, it is just to save family if something happens. Second mistake people do is that they take it as a saving tool or investment. But it is not an investment rather it is just a precaution.

Health insurance :-

Health Insurance helps you save from big wealth destruction at the time of any serious disease. If nothing happens it is very best. People not take health insurance because they thought nothing gone happen to them. But no one can predict the future. How many families in India we see not able to survive just because they loose all money in disease of a one person in family. Again people do same mistake here that they have done in case of term insurance.

Mutual Funds :-

Have some amount invested in best mutual funds for future goals according to individual. Mutual Funds help you to save the good amount and grow that saved amount by good margin so that it can beat inflation and have a good corpus in future to have a better life. Have different mutual funds for different goals. It also can be Debt fund. According to the time of goal and also take risk according to the goal.

For example if you have a plan of children’s education after 10 years then we can’t take risk on their education so at this time have a less risky fund. On the other hand, if you have planned a trip after 10 years then here you can have some risk because it can be managed according to time.

After all this if you have sufficient amount to invest in market then you can start Stock Market. But always remember proper diversification and money management is very important. For that you have to focus on some points that are:

(a). Keep Learning.

(b). Consistency.

(c). Always respect market.

(d). Control Emotions.

(e). Don’t focus on News so much.

(f). Have conviction on your studies.

(g). Don’t try to be quick rich.

(h). Risk management.

If you able to do the above discussed points for 2–3 years then no one can stop you to become the very good trader/investor.

Conclusion :-

So if we come to conclude the above article then money management is very important if you want to invest in the stock market for long term and really want to do wealth creation. Because it will health you even when bad times will there. If at that you would have proper management and emergency fund then you will able to survive and stay invested in the market.

This is for education purpose. If you have any query let us know in comment section.
Thank You
Happy investing🙂🙏