Let’s start buy saying that a beginning investors should not invest all of their savings. First time investors need to take their time and learn as much as they can while “dabbling in the market”, until they feel comfortable enough to invest a large sum of money. To figure out how much money you should invest, we need to determine how much money you have to start with.
The first thing we need to do is take a look at how much money you can currently afford to comfortably invest immediately without wiping out your savings. If you have a few dollars in savings that you can afford to invest, great!!! You are already ahead of the game!!! Remember, you don’t want to cut yourself short and tie up all your money up in the stock market. I’ve always use the same rule that many Personal Finance experts will tell you. It is important to keep three to six months of living expenses in a readily liquid savings account. That money should not be invested! You heard me correct, if you do not have three to six months of living expenses saved, stop reading and do that first before you invest!!! Keep that money on hand just in case you need it for an emergency or unexpected expenses. Also understand that you should never borrow money or take out a loan to use for investing. After you have that three to six months of living expenses saved, a portion of that should be invested. Any amount over and above that three to six months of saving is investable money!!! Remember, investing is all about comfort. It's about how comfortable you are with risking your hard earned money. Never let anyone talk you into and uncomfortable situation with your cash!!!
Now that we’ve determined know how much you can invest into the stock market from your savings account, we need to set up some kind of investment plan. By setting up an investment plan, we can use a portion of your future paychecks to build a portfolio Warren Buffet would be proud of!!! A good staring point is around 10% of your paycheck, but remember its all about comfort. There are many budgeting software systems that come automatically built into computers. You can even use Microsoft Excel templates to create a budget. If you don't feel comfortable creating a budget on your own, you can speak with a qualified financial planner to set up your budget and determine how much of your future income you will be able to invest.
I’ll leave you with the 3 important points of this blog:
- Never borrow money to invest!!!
- Never use that three to six months of money that you have not set aside for investing!!!
- Never let anyone talk you into and uncomfortable situation with your money!!!