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Learn how much of your income to invest with this beginner-friendly guide. Discover practical tips for building wealth and achieving financial security
Investing your money is an excellent way to grow your wealth over the long term. Whether you’re just starting your career or you’re a seasoned pro, it’s never too early or late to invest in your future. But how much of your income should you invest?
There is no universal solution to this question, as investments can vary depending on factors such as income, age, priorities, and investment goals.
Before we help you find the right answer to this question, let's first discuss why you should invest your wealth.
Why should you invest your wealth?
Investing is a smart way to grow your wealth over a period of time. When you invest your money in any asset, whether stocks, gold, or mutual funds, you generate returns on your money.
It is best to start investing as soon as you start earning regular income. You must always set aside an amount to invest in stocks, mutual funds, or assets like physical gold and digital gold.
Here are a few reasons why you should invest your money:
- Building Wealth: This is a major reason to have an investment plan in place. A set amount of money from your job in your savings account isn't doing much for you.
On the other hand, if you put a chunk of your income into mutual funds, SIPs, or digital gold, you can gain high returns.
- Portfolio Diversification: Investing your money in various assets can help diversify your portfolio. It is also a great way to manage and minimise your risk from poor-performing assets.
You can diversify your investments by investing in real estate, gold, stocks, and mutual funds.
- Emergency Funds: You never know when you may need to rely on your savings during a rainy day.
It is pertinent to invest your money in liquid assets such as short-term debt funds, digital gold, or mutual funds.
- Future Planning: It is always important to set your goals for the future. You must have a plan for your retirement fund, in addition to relying on pension schemes.
Invest your money in retirement plans such as National Pension Schemes (NPS) or Public Provident Funds (PPF).
Long-Term Planning
Investments incur the best returns when done for longer durations. It is always advisable to invest money in any asset for the long term to yield the best return on investment.
Assets like stocks and mutual funds are always associated with some kind of risk. However, compared to other investment options, gold has a higher trust ratio with a minimal risk factor.
Gold can serve as a strategic asset in an investing portfolio because of its low connection with other asset classes like stocks and bonds.
As per the World Gold Council, during "risk-on" periods, the price of gold frequently moves in tandem with the stock market, but during times of market stress, there is no correlation.
In 2024, gold prices reached 39 all-time highs, peaking at Rs 78,500 per 10 grams. Gold prices surged to 39 new all-time highs in 2024, the biggest number in 45 years, driven by central bank purchases and geopolitical worries.
Digital gold investment is a great option to put your money in gold. Investors can start from as little as ₹10 with platforms like the Jar App.
How much of your salary should you invest?
Deciding the exact figure of how much of your paycheck you should invest depends on several factors, such as income, savings goals, current financial obligations, and future expenses.
Experts recommend investing at least 10-15% of your income for retirement.
But should you invest 10% of your income? The amount you invest varies based on demographics and tax brackets, so this 10% may not work for everyone.
However, this may vary depending on your individual situation. Another popular investment strategy is the 50/30/20 rule.
50/30/20 Budgeting Strategy
The 50/30/20 budgeting strategy tells you how much to save and invest each month.
It recommends dividing your after-tax income into three categories: needs, wants, and savings.
Fifty percent of your income should go towards needs such as rent or mortgage, food, and utilities.
You can allocate thirty percent to wants like entertainment, dining out, or other non-necessities.
Finally, 20% of your income should go to savings, such as investments in stocks, bonds, and real estate.
While the 50/30/20 strategy is a helpful salary investment calculator, it may not work for everyone.
Before choosing a percentage of income to invest, there are several factors to be considered. To assist you in beginning your investment journey, we have divided it into four steps:
Step 1: Considerations Before Beginning Investment Journey
Before embarking on your investment journey, there are several important considerations to keep in mind. Here are a few questions to ask yourself:
1) What is your current financial situation like?
Take a close look at your income, expenses, and outstanding debts.
Understanding your financial landscape will help you determine how much percentage of your income should be invested without jeopardizing your day-to-day financial needs.
2) What is your risk tolerance?
Determining your risk tolerance will guide your investment decisions.
It helps you understand if you are comfortable with taking on higher risks in pursuit of potentially higher returns or a more conservative approach to preserving your capital.
3) What is your investment time horizon?
Your investment time horizon tells you how long you plan to invest your money before needing to access it.
This will help determine the appropriate investment vehicles and strategies for your goals.
4) What are your financial goals?
The final question to ask yourself before commencing your investment journey is to understand your short-term and long-term financial objectives.
We will dive deeper into this question in step 2.
By answering these questions, you can gain clarity on your risk appetite, investment timeline, and financial capacity. Your answers will help you create a tailored investment plan that aligns with your unique circumstances and aspirations.
Step 2: Setting Your Investment Goals
Defining clear investment goals is crucial to guide your investment strategy and to figure out how much of your income should you invest.
Start by identifying your short-term and long-term financial objectives. Short-term goals might include saving for a down payment on a house or funding a dream vacation, while long-term goals may involve retirement planning or building generational wealth.
Your goals should be specific, measurable, achievable, relevant, and time-bound (SMART goals). Setting these goals will help you determine the appropriate investment amount and time horizon.
Step 3: Exploring Your Investment Options
Once you've established your goals, it's time to explore the different investment options available to you. The investment landscape offers a wide range of choices, including stocks, bonds, real estate, mutual funds and commodities like gold. Each option comes with its own risk and return profile.
Stocks are one of the best high-return investment options but come with greater volatility.
Bonds, on the other hand, are generally considered more stable but may provide lower returns making them one of the safest financial assets for money investment in India.
Mutual funds provide diversification across a range of securities, making them a suitable choice for investors looking for professional management, access to a variety of assets, and potential long-term growth.
Physical assets like gold and real estate can serve as a hedge against inflation and market volatility. Gold investments help diversify investor portfolios and preserve purchasing power in times of economic uncertainty.
Before you begin, research each investment option, consult with financial professionals if needed, and choose investments that align with your goals and risk tolerance.
Takeaway
Investing is a dynamic and personalized journey that requires regular monitoring and reevaluation.
It is essential to stay informed about market trends, economic factors, and any legislative changes that may impact your investments. You can also seek professional advice to better answer questions like how much to invest in SIP per month and how to invest your salary wisely in India.
By following our three-step investment process, you too can understand how much to save and invest each month and be better equipped to make informed decisions and pursue long-term financial success.
