4 Simple Wealth-Conscious Steps to Help You Know How Much to Invest & Not Feel Deprived

Tips to Know How Much to Invest

Now that we’ve covered the benefits of investing your money and how to know if you’re ready to invest, it’s time to talk about how much we should actually be investing.

It’s tempting to invest all of our extra income, or maybe you’re on the opposite side of the spectrum, that it’s tempting to invest the smallest amount of our extra income. Whichever side you’re on, let’s talk about what is really practical.

When I was trying to decide how much money I wanted to put toward investing this year, I was thinking, I want to max out my Roth IRA, buy another property and purchase more stocks. I knew I had to be careful and keep a savings because I wouldn’t want to pull from my investment accounts if something went wrong with my other properties, so I had to think through things in a practical matter.

So let’s figure out how much to invest by breaking it down into 4 simple steps.

Figuring Out How Much to Invest: Step 1

Just start. You need to start somewhere, even if it is a small amount, it’s still something that will move the needle forward. If you’re afraid, just start small, but still start.

Let’s not complicate it if you’re just getting started. A good number to start with is 10% of your income. Remember, this would include any type of investing – stocks, real estate, Roth IRA, ROTH 401k, etc. Remember there are a lot of great benefits for investing (read earlier post here), so try not be stingy here, but be realistic. Think of what you can comfortably afford to invest then do a little more, but don’t stress yourself out.

Investing will get easier as you continue to do it, so pick an amount you think will work and move on to step 2.

Figuring Out How Much to Invest: Step 2

Step 2 is to take into account what you really want to get out of your investing. Is it to buy a house, a car, save for retirement? Depending on what you want to end up with, you may need to increase your investment amount. Figure out what your investing goals are.

Decide how much you’ll need to end up with and what the average return is on your type of investment tool. If the stock market averages a return of 8%, will you have enough money to pull out to achieve your goal for the duration you’ll be leaving your money in there?

Plan out what you really want and make sure you’ll be able to achieve it and if you won’t, figure out where else you can get that money to invest. Whether it’s cutting back on something you don’t really need (cable?) or starting a side business for a little extra income. There’s ways to find the money so you can achieve your goals – because that’s what’s really important.

Figuring Out How Much to Invest: Step 3

Once you decide on a certain amount, keep in mind that as you continue to work, you’ll receive raises or increases in your income and an easy way to continue to increase your investments is to put those increases straight into your investments. You won’t miss the extra money because you hadn’t already been receiving it anyway.

If you don’t increase your investing immediately when you do get a raise, it will be a lot harder to do later because as we receive more income, it becomes easier to spend the extra money.

Just like our work expands when we give it more time, our spending habits also increase when we get an increase in our income, so be careful to focus on what you really desire.

Figuring Out How Much to Invest: Step 4

Investing also needs to take into account your happiness. You can always continue to invest more money, but if you’re depriving yourself of things that are fun or joyful occasionally, then you’ll come to resent your investment funds, and even possibly try to pull the money out. So find a level of investing that still keeps you happy with your day to day life. No need to be extravagant, but be realistic.

I’m not saying to only invest 1% and go blow the rest on movies, but if you’re investing in your Roth 401k, maxing out your Roth IRA, have some extra investments like stocks or real estate then you don’t need to feel like you need to be investing every extra penny you have. Make sure you go to a movie once in awhile or eat a steak dinner, or whatever it is you enjoy so you can feel good about your investments and don’t feel like you don’t have any extra money to spend on things that are small, but still important to you.

Let’s do a quick investing recap: Start somewhere. Figure out your goals. Plan ahead to invest extra money coming in. Don’t deprive yourself so much that you feel bitter toward investing.

Hopefully these steps will get you thinking about how much would be a good amount for you to invest. What else would you take into consideration when figuring out how much to invest? I’d love to hear in the comments below!

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