Deciding How Much to Invest Each Month? Here’s a Helpful Thought Process

Congratulations on deciding (or even thinking) to invest. You're already quite a leap ahead of the majority of the population. But the next decision is where many wanna-be investors get tripped up. How on earth do you make the decision on the amount to invest each month? 

This particular choice takes you from being the interested researcher to become the investor you dream of being, and can be the single driving factor as to whether you meet your financial goals or not. You could be frugal your whole life and not accumulate wealth. The only activity that builds true wealth from scratch is investing.

• Implement a Budget First

When you first decide to invest, before you get caught up in retirement goals and percentages, it's important to implement a budget for your household. Doing so will ensure that you and your family can live within your means, which is imperative to establish prior to committing to locking away a portion of your income long term. 

The pay yourself first method beautifully lays out your budget with contributions toward savings goals as a priority and all other living expenses falling thereafter. This means investing in yourself and your future first, at a reasonable amount in comparison to your income, and then paying your home, utilities, and other necessities. This may mean that you afford less of the luxury items you want at this time, but it also means that your future will be much brighter. 

By implementing a savings plan at the top of your budget, then paying for essentials, followed by unnecessary items and wants at the bottom, you're investing in your future and the quality of life that you expect to have at that time. 

• Establish a Contribution Goal to Work Toward

Once you've established a budget and can confidently allocate money directly to savings, you should start working toward a goal of saving and investing 10% of your take-home income. Consider factors like your age and how much debt you have, if any. 

Take note that your GOAL investment percentage should be 10% or more. This doesn't mean you have to start that high. A reasonable place to start, that won't significantly impact your lifestyle is low, in the 2%-5% range. If you're 25 years old, for example, you have 10 more years to accumulate wealth than a 35-year-old. Begin investing a low percentage, meanwhile, focus on paying off debt, building a strong basic savings account for emergencies, and maintaining a cash lifestyle.

• Start Small and Build Over Time

Set up automatic contributions at your comfortable, low, beginner percentage. Within your investment account, there's almost always an option to have your percentage or a certain rupee amount automatically increased periodically. Consider increasing your contribution by a single percentage point every 6 months or every year. 

If you start investing just 4% of your take-home income now and set up your account to automatically increase 1% every 6 months, in just 3 years you'll hit your goal of investing 10%. Incremental adjustments like this will be nearly pain-free considering you're likely to also achieve promotions, bonuses, and pay increases in that same amount of time. 

• Imagine What Investing Can Do for You

What would your life look like in this scenario? Think about what this bright future looks like for a minute - for 3 years, you've had a steady income, paid off the things you owe, all while cranking your investment percentage up to this nice round number. 

What if you didn't stop there? What if you became completely debt-free and continued to increase your contribution rate at 1% per year after that 3-year mark? 8 years from now, you could be investing 15% of your income consistently, have a solid history with your cash and be well on your way to a successful (early?) retirement. 

A couple of thoughts to keep in your back pocket

The only things you need to remember now are: 

1. You're a flexible person - you can adjust your budget as needed and increase your automatic contribution percentage over time. 
2. The action of habitually investing is the behavior that will make a difference, and the earlier you start, the better.

Anyone, at any income level, can start investing at any point in their lives with this simple thought process. 

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