Deciding how much to invest can be tricky since investing is usually a long-term decision. Storing money in investments that you need in the short run can be risky. How do you decide how much to invest and how much to keep in more easily accessible places like savings?
Goals Based Investing
Some people find setting monthly goals to be a helpful way to stay on track when it comes to investing.
If you feel like you already have some money to set aside each month after paying the bills, try to quantify that amount. How much do you spend compared to how much you make? How much money is left over in your checking account at the end of the month?
After you have a sense for how much you can comfortably spare to invest every month, write down that number and make sure that you’re hitting your goal every month.
If you feel like you don’t have much money to invest every month or you’d like to challenge yourself to invest even more, decide a goal amount that you’d like to invest. Figure out the difference between that amount and the current amount that you have left over every month. You’ll have to find somewhere to cut back in order to reach your new goal. Can you cook at home 1 or 2 more nights a week instead of going out? Could you negotiate your phone bill or cut a recurring subscription?
Intuitive Investing
I’ve always loved intuitive methods of doing things. I don’t diet or watch what I eat. I let my body decide what it wants to eat. I’m the same way with money. Over the years I’ve developed a healthy money mindset that allows me to prioritize my financial goals without feeling like I’m limiting myself in other areas.
My method of figuring out how to invest every month is less rigid than above, but it involves some more manual consideration than having a static goal amount to invest every month.
I maintain a budget where I don’t spend more than $2,500 in a normal month. Some months I am over and some months I am under. I like to give myself the flexibility to splurge when I’m in the mood and I also like to take advantage of the times where I can save more.
With this $2,500 guideline, I spend pretty freely and very rarely feel deprived. Every two weeks when I get paid, I will assess my short-term needs. Do I need to pay rent or pay off my credit card bill soon? Once I decide how much money I’ll need before getting paid again, I can then decide how much to invest or save.
This morning for example, I had $4,300 in my checking account. I knew that I would have to pay off my credit card before my next paycheck which is likely to be around $1,800. With that, I decided to invest $2,500.
I rarely invest the same amount every time because I like making the decision of what is best in the moment.
Make Sure You Follow Through on Your Investments
Setting the intention to invest is one thing. Actually investing is another.
If you set up a monthly goal, the easiest way to follow through is to set up automatic transfers to your investment account.
If you follow my intuitive method, you’ll have to actually log on to your account and manually invest every month.
One way to make things easier is to download the app for the brokerage that you use. Usually apps are easier to use and they are a lot more convenient.