What's the right amount to invest?
When it comes to saving many people follow the 50-30-20 rule, but there is no guide for investing. How much is the right amount / proportion of your money to invest each month? How can people decide?
Copy article
4 responses from the Newspage communityCopy all
Copy all
Star Quote
Copy
The 50-30-20 rule (50% needs, 30% wants, 20% savings) is an age-old budgeting matrix but as everyone’s circumstances are unique, a ‘one size fits all’ approach is only ever going to provide a rough rule of thumb at best. To calculate how much you should invest every month, you will need to consider your age, goals, income, overheads and risk appetite so it’s too simplistic to suggest one magic number. I was often advised that 10%-15% of your post-tax income is about right. With the cost of housing and children, this level has often been elusive but the younger you start, the more time on your side, and the more you could consider investing aggressively into the markets to leverage compound growth. The trick? Invest what you won’t miss today but will thank yourself for tomorrow.
Copy
Many people assume that investing is only an option once they have substantial excess cash, but this mindset is counterproductive, as the most important decision is not how much to invest but when to start. Sadly, the vast majority of advice on this topic is rooted in generic percentages or vague platitudes about risk and rewards, but at a time with inflationary pressures and volatile markets, this really isn’t suitable. Put simply, a small but consistent monthly investment made over decades will often outperform sporadic large contributions, as thanks to compounding, the longer money is invested, the more it benefits from exponential growth. However, investing should never come at the expense of financial security, so the priority should first be to build a strong base free from high-interest debt and with a sufficient emergency fund. It's important to remember that this is not an all-or-nothing decision, and the key is to start early and increase over time as circumstances improve.
Copy
Most savings or investment plans fail because people set unrealistic goals. Accept that you’re not Warren Buffett—focus on what you can comfortably put aside each month. Some months will be better than others, and that’s fine. Review your progress every six months and adjust as needed.
Copy
Essentially, there are only three things you can do with money: spend it, give it away or save it. The proportion that you budget for each will depend on two things, necessity and habit. Anyone who is encouraged to save and give from an early age is likely to continue into adulthood, otherwise, spending is our default. Necessity is where an individual's objectives require a set amount to be saved regularly. People often see saving as being a 'tax' on their current lifestyle, preventing them from spending what they like on 'fun things' today. However, it's actually deferred gratification, holding back some of the pleasurable things for now until a later date when those savings can be put to good use.