How Much Should You Invest Every Month?

There is no universal formula that works for everyone when deciding how much to invest. You should decide how much you can invest each month based on your income, lifestyle, goals, and responsibilities.

The first step is to find balance – cover your daily needs, keep a financial cushion, and still invest regularly. There are a few simple and useful rules that can help you decide what works best for you.

The 50/30/20 Rule

The 50/30/20 rule is a popular money management strategy. Its biggest advantage is that it works great for beginners because it is simple and easy to follow. Allocate the money according to the following distribution:

1. 50% of your income to your needs, such as rent, utilities, food, and other essential expenses.
2. 30% to your wants, such as entertainment, travel, or hobbies.
3. 20% to savings and investing

By following this rule, you have a clear percentage of money to invest every month. However, you can start with 10% if 20% feels too high. The goal of following this rule is to build a habit. Thus, you can regulate the percentage depending on your current financial situation.

Personal Financial Goals

It is important to understand what you invest or save your money for to manage your finances effectively. You should craft your strategies for the short and long-term financial goals:

1. Short-term goals (1–3 years) include saving for a holiday, wedding, car, or an emergency fund. It is better to choose safer investment options for short-term goals or keep more money in savings.
2. Long-term goals (10+ years) include retirement, buying property, or building long-term wealth. Investing is the most appropriate choice for long-term goals because, in such a case, the time will work for you, and you can benefit from the power of compound interest.

To choose your financial goals, you should also think about your disposable income, which is the money left after you pay for your essential expenses. For example, if you have a small amount of money left each month, it is better to set smaller goals and vice versa.

The Impact of Age and Risk Tolerance

Asset allocation often depends on investors’ ages. Different investments vary in risk, return, and investment period and are better suited to a specific group of investors.

Younger investors have more time ahead, so they can take more risk and recover later. In contrast, older investors opt for safer options to protect their money because they have less time to recover if their investment doesn’t work out.

What If You Can’t Reach 20%?

There are many reasons why people may not be able to invest 20% of their income. For example, someone may have trouble balancing the debt-to-income ratio or simply lack the financial capacity. But it is completely normal, especially for beginners in investing.

You can start with a ladder strategy if you feel that you can’t allocate a large percentage now:

1. start with a small amount, such as 1–5% of your income
2. increase the money you invest gradually over time
3. adjust your investments as your income grows

By using a ladder strategy, you will feel less pressure and will be able to set your comfortable monthly investment amount.

Start with Micro-Investing Apps

Beginners often start investing through micro-investing apps because they are simple to use and allow them to invest with small amounts. Micro-investing apps work automatically and help remove the stress of making investment decisions. The best part is that you don’t need to invest large sums; you can invest small amounts regularly, which can help build a habit over time.

Spendvest

Spendvest is a great example of automated investing apps. It does not require you to choose stocks, track the market, or make manual transfers.

Spendvest works by connecting to your bank account and card and investing a specific amount from your everyday purchases. All you need to do is choose a percentage, and the app will automatically apply it to your daily purchases. For example, if you buy a coffee, the application invests a small portion of your purchase in the stocks of the brand you bought a coffee from.

This way, investing feels natural because it becomes a part of your daily routine. The process runs in the background, and you do not need to think about when to invest or how much to invest.

FAQ

Should I invest or pay off debt first?

It is better to pay off a debt with a high interest rate. However, you can pay off a lower-interest debt alongside investing.

What percentage of my income should I invest?

According to the 50/30/20 rule, you should start with 20% from your monthly income. But you can start smaller by gradually moving to 20% goal.

Should my monthly investment amount change as I get older?

Risk tolerance decreases as investors get older; they choose safer investment strategies and tend to invest smaller amounts.

Disclosure: Certain information contained herein has been obtained from third-party sources, and such information has not been independently verified by Spendvest. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by Spendvest or any other person. While such sources are believed to be reliable, Spendvest does not assume any responsibility for the accuracy or completeness of such information. Spendvest does not undertake any obligation to update the information contained herein as of any future date. Except where otherwise indicated, the information contained in this presentation is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution or any future date. Recipients should not rely on this material in making any future investment decision.