For approximately 99% of the people I meet fixing their personal financial planning is far far far more important than making a great investment plan and implementing that. They spend 90% of their time on choosing which fund to invest. They might as well use a dart board.

In life to get along you need to get many of the basics right…investing comes in AFTER getting the basics right. Let me tell you what I think can sink your financial ship:

1. Not knowing your goals: one very educated person calls me and says “I am stopping a SIP…I need to pay for some equipment in my BUSINESS’ – I do think this happens when you have no clue about which SIP you are doing for what. Somebody came along and said ‘do SIP’ so you started a SIP (amount does not matter) and it was going on well for 18 months. A new IFA (RM) came along and said ‘why are you doing in fund…x’ and this guy must have decided to switch funds. Now he needs my ‘approval’ to tell his IFA – ‘subra also said it is a good switch’. Hello doc get your GOALS right. Which fund does not matter so much.
2. Not having an emergency fund: One day I am sitting with a friend who is showing off her portfolio. She had a sip running in Franklin India Flexicap fund and she had accumulated a nice amount – in millions – and she had withdrawn a big amount. One was because she did not have an emergency fund. Sorry. She had a lot of old debt funds too..but did not know which to break!!! So she said ‘this fund had given better returns than others’ so she broke that. I did not have a heart to ask what she did with that money. Actually this also was worsened by lack of goals? Perhaps.
3. Removing the most convenient money to remove: People never surrender their life policies, or take a loan from the life policies. Why? It is easy to remove money from a mutual fund. LOL.
4. No clue about monthly income / expense. No budget, no ability to know how much they can save per month. Just ‘tukka’.

Investing to reach your long term goals is a great plan, and every body should have one. Sure however one that needs to be predated by a thorough financial examination. The first step is knowing how much you earn, creating a budget, and planning how much you wish to save, and how much to invest.  Are you operating at a profit or loss?

Do you have loans? especially the private loans at usurious rates? Go create a monthly budget and monthly cash flow.

Eliminating high cost debt, taking adequate medical and life insurance, and creating an emergency fund – these are the next MUST DO steps. ONLY, after that, you can talk about what financial goals you would  like to accomplish and how you intend to get there.

Investment strategies and asset allocation are very important topics that can be spoken about after you make sure your financial ship is sailing and that YOU have fixed all the holes. If you do not want to look at your life as a ship..look at it as a bucket where you are trying to fill water. You need to plug the holes right?

If it is a ship look at the engine of the ship before you worry about painting the ship. Engine, rudder, mast, all are far more important.

Protecting what you have, and what you are creating is far more important – make a living will, make a ‘medical power of attorney’ are far more important than wondering whether to invest in Franklin India Bluechip or Icici Pru Focussed Blue Chip fund’.