How much should I invest?

One of the major challenges new investors face is the question of how much should I invest? What is the minimum amount I should invest? How long should I keep investing?

Investing is like exercising, the most important part of it is consistency, it doesn’t matter how many hours per week is dedicated to working out, what matters is that you do it consistently and for the long term. Check our article on how frequently should I invest?

The question is, how much should I invest?

Step 1: Know your resources
Just like exercising, you don’t want to underestimate your capacity and get unsatisfactory results, and you don’t want to overestimate your capacity and get injured or hurt.

So you need to figure out your financial capacity by auditing how much you are making every month, coming from your salary, your side gigs or freelance, interest on your savings, plus your savings itself.

Step 2: Know your expenses
This might be tougher than the first step, here you want to audit all the major monthly expenses you have, this includes rent, bills, food, transport, monthly installment payments, loan payment, digital subscriptions, etc.

Now does your income exceed your expenses?
If your answer is Yes, then great, here’s what you need to do.

Be prepared for that rainy day (not literally)

Make sure you have enough savings as an emergency fund that can cover at least 6 months of your expenses.

Decide how much extra money you can allocate for investment

Setting a budget can be tricky, this is why you should be realistic when you set it and open to revisiting it every now and then.

Think of it as a matter of trial and error, you will need to go back to your budget to make sure you can stick to it without stretching yourself too thin.

If  you’re still confused, here’s a general budgeting formula that works with many people

  • 50% spent on essentials – rent, food, and transportation 
  • 30% spent on wants – dinners out, new shoes, and trips 
  • Now, you’ve got 20% left – it’s time to invest that in your future.