Do you afford to trade or invest at all?

Many times I’ve come across people who wish or rather, need to invest in stocks (equity) so badly that they actually do, but after just 2–3 months, they end up back where they started: not staying invested.

From my experience meeting people and studying their investing behavior, there are two main reasons why people are forced out of the market. The first is that they can’t yet afford it, and the second is that they are not aware of the nature of the market. I’ll explain the first reason in this post and the other in a future one.

Reason: Not affording to invest.

There’s a simple checklist you should follow before investing your hard-earned money in the stock market or in any kind of capital-appreciating investment for the long term. Here’s the checklist:

Get insured first

• Life Insurance: Term or traditional (I prefer term). Get your life insured to protect your loved ones.

• Health Insurance: You never know when you’ll need an emergency operation, so get it done.

• Motor Insurance: If you own a vehicle.

Build an Emergency Fund
Try to build at least twice your monthly salary/wage. Keep this money in a high-interest savings account that you can access anytime.

Build a Six-Month Expense Fund
Nothing in life is secure or fair. Since it isn’t fair and square, you shouldn’t play fair either you need to think ahead. Saving at least six months’ worth of expenses gives you a buffer in case of layoffs or other setbacks, and enough time to prepare for your next career move.

If you’ve checked off all the points above, congratulations, you can start investing. But the real question is: why is it necessary to go through the checklist first?

Think of this scenario. You’re 25 years old and just got your first paycheck. You’re excited to invest because everyone you know is SIPping into mutual funds. So you follow the trend and start investing. But then life happens: expenses eat up more than 60% of your salary, emergencies come up, and you need quick cash. What do you do? Obviously, you break your investment and just like that, you’re back where you started. You try again, promising not to exit no matter what, but life keeps bringing uncertainties. That’s why the checklist is so important. Until then, I’m sorry to say it, but you can’t yet afford to invest in the stock market.

The word invest itself is powerful. When you invest, you commit for the long term at least 5+ years. The stock market isn’t designed to give you guaranteed returns after 6 months, 1 year, or even 2 years. For example, if you had invested in NIFTY 50 index funds on January 1, 2025, you’d still be sitting with 0% or even negative returns at the time of writing this. The market rewards patience. Over the long run, it’s one of the best instruments to compound your money and beat inflation.

So unless we can truly afford to stay committed for the long run, we should look elsewhere to park our money.