In the world of personal finance, budgeting and investing go hand in hand. While budgeting helps you manage your finances day to day, investing is crucial for building long-term wealth. One common question that many people have is,

“How much should I be investing?”

Budgeting Basics

Before diving into the world of investing, it’s important to establish a solid budget. A budget is essentially a financial plan that helps you track your income and expenses. By creating a budget, you can gain a clear understanding of where your money is going and where you can adjust.

Start by listing all your sources of income and then track your expenses. This can include fixed expenses like rent or mortgage payments, utilities, and insurance, as well as variable expenses such as groceries, entertainment, and dining out. By categorising your expenses, you can identify areas where you may be overspending and make the necessary adjustments.

A more detailed piece on budgeting can be found here. We have found Toshl to be a great app to track your budgeting requirements and the use of multi-currency is useful when you have multi-currency bank accounts. For a more hands-on approach, have a look at this tried and tested spreadsheet version here. Stay tuned for a video guide on how to set up your budget for 2025.

Determining How Much to Invest

When it comes to investing, there is no one-size-fits-all answer as to how much you should be investing. The amount you invest will depend on various factors, such as your financial goals, risk tolerance, and time horizon.

Determine how much your essential expenses are. Take an average of your want expense over a long period of time. Backdate and check how much your expenses were 6-12 months before if you need to. This will determine the remaining portion what might be allocated towards investment, whether it be in stocks, bonds, an emergency sinking fund or retirement accounts like a TVC account.

Setting Investment Goals

To determine how much you should be investing, it’s essential to set clear investment goals. Are you saving for retirement, a down payment on a house, or your child’s education? Understanding your financial goals will help you establish a target amount to invest each month.

Consider factors such as your risk tolerance and time horizon when setting investment goals. If you have a longer time horizon and can tolerate more risk, you may choose to allocate a higher percentage of your income towards investments. Read more about this here.

Building a Diversified Portfolio

Diversification is key to a successful investment strategy. By spreading your investments across different asset classes, you reduce risk and increase the likelihood of achieving consistent returns. Consider investing in a mix of stocks and bonds to build a well-rounded or diversified portfolio.

Financial planners build and develop an on-going plan to reach your financial goals. Fiduciary financial planners go beyond advising on your investments and take a holistic approach, an on-going process to help you make smart decisions about your finances.

Monitoring and Adjusting Your Investments

Once you’ve started investing, it’s crucial to monitor your budget regularly and adjust as needed. Unplanned expenses could result in a lower investment deposit in one month and the opposite applies when you receive a bonus. Your financial situation may change over time, requiring you re-allocate your investments to align with your goals. Your financial planner can help you along your journey to reach your financial goals.

Remember, investing is a long-term journey, and it’s important to stay focused on your financial objectives.

In conclusion, the question of “How much should I be investing?” ultimately depends on your individual financial circumstances and goals. By taking a strategic approach to budgeting and investing, you can create a solid foundation for long-term financial success. Start by creating a budget, setting investment goals, building a diversified portfolio, and monitoring your contributions regularly. With dedication and planning, you can take control of your finances and build wealth for the future.