Many first time investors think that they should invest all of their savings. This isn’t necessarily true. To determine how much money we should invest, we must first determine how much we actually can afford to invest, and what our financial goals are.
First, let’s take a look at how much money we can currently afford to invest. Do we have savings that we can use? If so, great! However, we don’t want to cut ourselves short when we tie our money up in an investment. What were our savings originally for?
It is important to keep three to six months of living expenses in a readily accessible savings account, don’t invest that money! Don’t invest any money that we may need to lay our hands on in a hurry in the future.
So, begin by determining how much of our savings should remain in our savings account, and how much can be used for investments. Unless we have funds from another source, such as an inheritance that we’ve recently received, this will probably be all that we currently have to invest.
Next, determine how much we can add to our investments in the future. If we are employed, we will continue to receive an income, and we can plan to use a portion of that income to build our investment portfolio over time. Speak with a qualified financial planner to set up a budget and determine how much of our future income we will be able to invest.
With the help of a financial planner, we can be sure that we are not investing more than we should or less than we should in order to reach our investment goals.
For many types of investments, a certain initial investment amount will be required. Hopefully, we’ve done our research, and we have found an investment that will prove to be sound. If this is the case, we probably already know what the required initial investment is.
If the money that we have available for investments does not meet the required initial investment, we may have to look at other investments. Never borrow money to invest, and never use money that we have not set aside for investing!
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