How much should I invest?
14 May 2021
One of the great things about investing is that you can invest as little or as much as you want—especially once you’ve considered things like an emergency fund and your debt situation.
But this creates a bit of a dilemma: how much should you invest? Should you put away a dollar a week, a thousand dollars a day, or something in between?
Here’s an important thing to think about: what investment amount is affordable and sustainable for you? In other words, an amount that you think you can stick to over time.
But there are a few other strategies that you may want to consider as well. Take a look:
When do I want to reach my goal?
A good motivator to investing is setting goals—it’s much easier to commit to investing if you have a clear idea of what you’re investing towards. But goals aren’t just about the things you want. They’re also about when you want them. For example, you might be investing for a deposit on a house. If it takes you 40 years to reach that goal, you might not have much time to enjoy your house!
So if you think about when you want to reach your goal, you can adjust your investing to match that time period. The further away your goal is, the more opportunity you may have to benefit from time in the market. However, regardless of how long you have been investing, it’s important to remember that investing involves risk and you aren’t guaranteed to make money and you may lose the money you started with at any stage.
Once you’ve figured out when you want to reach your goal, and if you can afford to, you might consider adding a little bit on top of your investment amount per week. That way, if they perform as you expected, or better, then you might hit your goal earlier! So if it’s going to take $100 a week to meet your goal in 10 years, you might like to think about investing $110 a week.
How much can I afford?
When you invest, you may want to focus on an amount that works for you. You might want to save a little bit for a long time, or a lot all at once - or somewhere in between.
The key question to ask yourself is how much of a change to your standard of living you’re willing to tolerate, and for how long. One extreme would be investing nothing at all, while the other extreme would be living on nothing but rice and soy sauce, and investing every dollar you make.
That’s the basic principle to think about when you’re figuring out how much to invest. Now let’s look at some specific strategies.
Fill the gaps
Maybe you decided to invest $100 a week. Now let’s say you get a new job, and your weekly pay increases. But you were happily living off the amount you were living on before. Your expenses haven’t changed, but your income has. So you could start investing more to fill the gaps. That would increase your weekly investment, without affecting your standard of living at all!
Run with the percentages
Filling the gaps is great for increasing the amount you invest, but you might want to spend some of your money on yourself. This is completely reasonable! After all, you worked for that pay rise.
So instead of filling the gaps, you could just invest a percentage of your income.
For example, if you decide to invest 10% of your weekly pay, and you make $1,000 a week after tax, then you’ll start out by investing $100 a week. If you get a $10k pay rise, and your pay goes up to $1,100 a week, you’ll invest $110 each week. You invest more, but you also get to reward yourself when you get a pay rise. Nice.
Wrap it up
So the amount you invest each week is really up to you, but we hope some of the above strategies will help. On the one hand, you want to reach your goals, but on the other hand, you may want to enjoy your day-to-day standard of living. But remember that investing is for the long term—and choosing an amount that you can afford and stick with is a great way to achieving your goals.
What kind of strategies do you use to figure out how much to invest? Let us know!
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.