How Much of Your Income Should You Invest for Your Future?
Just How Much is Enough?
Now that you understand some basic types of investments and the types of financial risks you may be willing to take at various times of your life, it’s time to consider just how much money you should put away on a regular basis.
The answer to this is unique to you as an individual and is based upon your personal circumstances; however, there are some rules of thumb that can guide you.
How much you invest each month will be determined by things such as your income, fixed expenses, and financial goals.
Read on to discover some considerations for how much of your income you should invest.
A Good Rule of Thumb:
As a general guideline, many experts recommend that you put aside at least 10% of your pre-taxed income for your retirement. This tends to be your largest and likely most important investment, so we’ll start with putting money away for your future needs.
How you choose to invest this money is up to you. Many employees start with their 401(k) or IRA, and that makes sense. You can set that money aside automatically each month to make it simpler. Feel free to put more away if you’re comfortable with that.
Some experts even recommend saving between 10 and 15% of your income. If this amount seems too steep, remember that any employer match counts toward your ultimate savings. Therefore, you may only need to start with 5% if your company matches your contributions dollar for dollar.
Some Considerations ...
Your Life Stage
Take your personal goals and circumstances into consideration when deciding how much to invest. If you’re starting relatively young, you can likely feel comfortable with putting forth just 10%. Getting a later start might mean you want to shoot for 15%. Anything you’re able to sock away will be better than nothing at all, so don’t get discouraged if you can’t immediately meet these amounts.
If you’re investing for other purposes or shorter-term goals, you can use what is known as the 50/30/20 rule which states 50% of your income should go toward necessities, while 30% is used for discretionary spending and 20% should go toward savings. This 20% for savings can include all of your savings needs to be combined, such as for vacations, education, and retirement.
The More - The Better!
In the case of investing for retirement, more is almost always better. It’s important to put away as much as you’re comfortably able to afford. This is likely to fluctuate throughout different transitions in your life, and that’s okay.
If there are periods you can afford to put more than the 15% into investments, try to do so. Remember, that money will be working for you.
On the other hand, if your obligations prohibit you from putting aside as much as you’d prefer, don’t beat yourself up for it. Simply adjust as you’re able to do so.
