If you’re looking to begin investing as a way of growing your wealth, then there’s no time like the present to get started.
There are millions of adults who have little to no savings, meaning that there’s no rainy day fund to turn to should an unexpected expense come out of the blue. With around one in 10 people in the United Kingdom admitting that they have no cash savings whatsoever, it’s clear that more should be done to encourage individuals to begin their investment journeys.
To make matters worse, a further 21% of UK adults have less than £1,000 to turn to in an emergency situation. These findings from the Financial Conduct Authority (FCA) not only shine a light on just how many people struggle to save but also underline the dangers facing a high proportion of the population should something go wrong in the near future.
Fortunately, there are many ways you can begin investing and many providers of individual savings accounts (ISAs) don’t require high deposits to open accounts, meaning that you can begin saving at your own pace.
But what should you keep in mind when managing your wealth in a sustainable way? Let’s take a look at five things to consider if you’re looking at starting your investment journey, including how much you should be investing each month:
1. Pay Debts First
You might be eager to begin your investment journey, but there’s little point in attempting to grow your wealth if your debt is rising at the same time.
Whether you have a personal loan or credit card balance lurking like an elephant in the room, it’s worth avoiding the temptation of making minimum payments to repay your debt, which could see you pay more due to high interest, and instead focus on taking large chunks out of your debt each month.
If you have multiple debts to address, it’s worth using a variation of your investment strategy to first attack your debt with the highest interest rate or quickly pay off any low balances.
You might also be able to get set up with a balance transfer card, which could help to move your debt to a new and lower-interest credit card. Just remember to immediately focus on getting rid of any debts that are rising due to high interest.
2. Prioritise Your Emergency Fund
While your investment goals may be focused elsewhere, it’s important to ensure that you’ve built an easy-to-access savings pot that can serve as an emergency fund if you haven’t already.
Generally speaking, you shouldn’t begin investing until you’ve built an emergency fund and have cleared your debts. Your emergency fund should be held in an easily accessible savings pot, and not an account designed to be left for five or 10 years to grow.
Having a cushion when you’re hit by an unexpected bill or a costly appliance breaks down should be one of the most fundamental rules to investing. Working out how much to set aside for your emergency fund can vary based on your living expenses, but it’s accepted as a general rule that setting aside around three to six months’ worth of essential outgoings can be most effective for enduring the most impactful financial setbacks.
3. Set Clear Investment Goals
When wondering how much to contribute to your investments each month, it’s important to remember that your needs and goals are going to be entirely different from many other people looking to begin their investment journey, so don’t worry if you feel like you’re doing it wrong.
The first and most important step is to know what you want to achieve. Here, it’s worth considering your financial goals. Do you want to save for your children? A large one-off purchase like a house? Or simply to build a rainy day fund for the future?
The answer to these questions can help you to understand what you’re saving for and how quickly you should be looking to add to your savings.
4. Consider the 50/30/20 Rule
Although no two investors are alike, it can be useful to work loosely towards a rule that has benefited many in the past. The 50/30/20 rule of investing helps you to better budget your money to balance your financial commitments.
Following this rule means that 50% of your monthly income is used for needs such as bills or food shopping, 30% is allocated to wants like dining out or holiday planning, and the final 20% goes to savings like investments or emergency funds.
The 50/30/20 rule is meant as a loose guide, and with this in mind, you may find yourself comfortably able to save more each month.
For many investors who have higher rent to pay or expensive utility bills, retaining just 50% of their monthly income for their needs isn’t possible. If you’re struggling to follow the 50/30/20 rule, it’s perfectly fine to make tweaks here and there to retain a level of financial comfort.
5. Always Diversify
Regardless of the amount you’re contributing to your investments each month, if you’re looking to build sustainable wealth and avoid putting all your eggs in one basket, it’s imperative that you diversify your investments.
Diversification provides a level of stability to your investment portfolio. For example, you could decide to invest in a selection of your favourite tech stocks, but if the industry suffers a downturn, then all of your investments will struggle. However, adding stocks from different industries can help to offer resilience to unexpected market challenges.
If you’re unsure of how to diversify your portfolio, you could always invest in a fund that purchases small fractions of different companies to grow your wealth in a less risky way.
Investing The Right Amount
These considerations can help you to invest the right amount of money each month for your specific financial needs and goals.
If you’re still unsure how much you should set aside each month, a financial advisor can listen to your specific situation and make a more bespoke assessment about how you can better manage your wealth.
Remember to never open a new investment if there’s a real danger that it could severely impede your level of financial comfort. By keeping your wants and needs in mind, you can set yourself up with a sustainable investment strategy that continues to pay dividends long into the future.
