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Hierarchy of investment needs

All investments are not equally important. You need to fulfil the basic investment needs first before moving on to the others


LEVEL 1
Basic contingency funds:
 This is the money that you may need to handle a personal emergency. It should be available instantly, partly as physical cash and partly as funds that can be immediately be withdrawn from a bank. Online banking and ATMs make it relatively simple to get this organised.
LEVEL 2
Term Insurance:
 Calculate a realistic amount which allows your dependents to finance at least short and medium-term life goals if you were to drop dead or be struck with a debilitating injury or disease. You should have an adequate term insurance before you think of any savings.
LEVEL 3
Savings for foreseeable short-term goals:
 This is the money needed for expenses that you plan to make within the next two to three years. Almost all of this should be in minimal risk, deposit-type savings avenues.
LEVEL 4
Savings for long-term foreseeable goals:
 Same as level 3, except the planned expenses are more than three to five years away. This level should be invested in equity and equity-backed investments like equity mutual funds.
This system aims at pre-venting you from going to higher level unless the lower one is fulfilled. If you haven't put emergency cash in a savings account, then don't buy term insurance. If you don't have term insurance yet, then don't start putting away money for your daughter's college education, and so on.