Whilst making the decision to invest can be difficult in itself, there then comes of question of how much money to invest. A sticking point in many peoples decision is actually using their own personal money, which they have earned, to invest. Money is a necessity of life, so to tie it up in an investment can certainly seem to be a scary process. But don’t let this put you off.
Investing can be done on any scale. It is therefore simply a matter of considering just how much you wish to invest. This article aims to point you in the right direction and help you consider just how much money may be suitable for your investing journey.
How much money to invest?
The reality of investing nowadays is that you can invest any amount. When you begin, you can start as small as you like and invest with little money. On the other hand, you could invest with as much as you have available. There are opportunities for everyone to be involved.
With improved technology and availability of investing, it allows access to any budget. You can start no matter how much money you wish to invest. It is worth considering that the more you invest, the greater your returns would be. But additionally, larger amounts invested will lead to it being at a greater level of risk.
Invest what you can afford to lose
So, if you can invest any amount, does it mean you should? Well perhaps not, no. When you begin investing, you will want to consider the fact that investing does come with risk, and it is possible to lose that money. Of course, to say you could lose all that money is looking at the worst-case scenario and there are ways to ensure that risk is reduced, but it is always a possibility. When you decide on a budget for yourself, you may wish to choose an amount which is suitable to your financial situation.
Are you in a situation to Invest?
When you begin deciding on how much you wish to invest, you will want to understand your personal situation. If your personal finance isn’t in order, then investing may not be the correct use of your money at this time. You will want to make sure you are in a positive financial position which enables you to invest freely. Whether that is paying off debt, ensuring you are able to live or creating an emergency fund, personal finance is key before you begin investing. Once you have realised you are able to invest, you will be able to create a budget suitable for your investing journey.
Creating an investing budget
Assuming you are in a situation that allows you to invest, then you may begin to decide how much money will be going towards investing. Perhaps you have money saved up, or you want to use part of your wage/salary. Either way, the chances are you have an amount in mind which you can use to invest willingly.
It therefore may be sensible to set a budget. Setting a budget will allow you to maintain focus and invest rationally. It will allow you to operate within your financial means and be sensible when it comes to putting that money to use.
When considering how much to set for your budget, there may be some factors which could help to determine the correct amount for you:
· Investing a lump sum or regular investing?
When you decide to invest, you will want to choose whether it is a one off or if you will be investing regularly. In fact, it is possible you begin with a lump sum and continue investing afterwards. It doesn’t exclusively have to be one or the other, but both need to be considered.
If you are investing a lump sum, you will want to ensure you have the savings available to do so, and that it won’t affect your financial situation. Investing a lump sum allows you to invest a greater amount and can increase the returns you may eventually make. However, there is arguably greater risk as you are putting all your money in at once.
Alternatively, you may decide you wish to invest regularly; in which case you will be consistently growing your investments at a rate which suits you. You will need to decide how much you can invest each week/month and budget appropriately to fit your investments.
· Do your goals affect the amount you wish to invest?
The chances are you have aims and goals when you begin investing. If not, definitely consider setting some as it will give you a clearer understanding on your investing journey. Depending on your goals, you may want to decide budget around them.
For example, if you are preparing for retirement you may wish to invest small monthly amounts to see consistent growth which allows you to build your pension. Alternatively, you could be much more aggressive in your investment strategy and wish to grow your wealth as quick as possible. That could mean increasing your budget and investing amounts which suit your aims.
Whilst these examples show the extremes of investing, aligning your goals with your budget will help create a focused plan that matches your ambitions.
· Do you understand your investments?
When you begin investing, the chances are you won’t know too much about it. Therefore, you may wish to start small as you ease your way into things. By dipping your toe in the water and gaining that experience, it could allow you to become more comfortable with investing your money. You may even find you wish to gradually increase your budget as your knowledge improves.
There also may be the scenario where you are extremely bullish on your investments and want to create a budget which allows you to maximise your returns. Understanding your investments will certainly increase your confidence in them and could encourage you to allocate a greater amount of money for your budget.
· Additional Costs
It may also be worth factoring in the idea of fees. If you are investing in the stock market, there will be fees associated. Brokerages will either charge an investment fee for buying the shares that you have, or an ongoing fee to use their service. Whilst this won’t be a lot, you may want to consider the impact it could have on your returns. It may mean you wish to increase your budget to accommodate for the added expenses.
How much money should you be investing?
You have considered an amount that you would like to invest. You have understood your personal financial situation and if it allows you to invest. Then assuming you are ready; you will have possibly thought about setting a budget as part of that. So, all things considered, just how much money should you invest?
Well the answer is simply this – it is your choice how much money you decide to invest.
When you choose how much money to invest, you should make sure it is appropriate for you. Ideally you will have chosen an amount suitable which works around your current personal situation. Additionally, you will preferably be able to afford to lose that money in the worst-case scenario.
Hopefully, this post has pointed you in the right direction on how much money you should be investing. There really is no right or wrong answer, it is simply based on you. It would definitely be worth taking the time to ponder what you really can afford and how much you want to be investing. It is all about creating the brightest possible future for yourself.