Investing money for the first time can be a difficult thing to figure out. Not only do you have to figure out when and where to invest your money, but you have to first figure out how much money to invest. While many people will often throw a percentage at you when you ask this question, it is important to consider this fully for your unique situation. Each person’s financial situation is different and depending on the circumstances, may directly affect how much you can afford to invest.
The Golden Rule of Investing Money
Investing money can be a risky business. We all know that it is important for growing wealth, but you shouldn’t let that convince you that it’s necessary to go all in. While you may have done your homework ahead of time to minimize the risk, nothing is full proof. That is why the golden rule of investing money is important to consider: only invest that which you can afford to lose. While you will hardly lose all of that money investing, it is important not to put yourself in a horrible position financially.
Factors to Consider When Figuring out How Much to Invest
When evaluating how much money to invest, here are several factors that can influence how much risk you can afford to take. The more money you invest, the higher chances of a higher return – but be safe.
Income Stability – How stable is your income? Do you depend on paying your bills from one source of income or is it diversified? if your income is diversified, you can afford to invest more money in the stock market. While it’s possible that you could lose some income, it’s unlikely that you will lose all of your income at one time, as might happen when you are the sole bread winner.
Liquid Assets – How much cash do you have sitting around that you could access in an emergency? Do you have enough cash to weather a storm? Before investing money, make sure that you have enough money to cover this. After that is covered, you can invest money to help grow your wealth with less fear of not paying your bills.
Cash Flow – How much cash flow do you have? Do you have a positive cash flow each month? If you are struggling to make ends meet each month, there is no question that you do not have enough money to invest. But, if you regularly have a large surplus, you should feel comfortable investing money. Not only does a surplus provide you with the cash to invest, but it also gives you a way to replace your losses if they do occur.
To put it simply, you need to have financial security to be able to invest money. If you are financially secure, I don’t see why you can’t invest most of your surplus. While you should diversify your investments, you will be better off if you invest more money. The last thing you want is to regret not investing enough early on.