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As living expenses spiral and house prices remain stagnant in many parts of the country, more Americans are deciding to invest their money. This could provide them with a steady stream of income in the future. Whether you want to invest in physical commodities, bonds, or something else, it can be difficult to know how much to spend. Here’s a guide that will help you.
The 50-20-30 rule is a budgeting method that helps you decide how much to spend on expenses, essentials, and other costs. Using this rule, you should spend:
By spending the bulk of your budget on living expenses and savings, you can cover all the essentials in your life and still have enough money to save for the future. How you spend the rest of your income is completely up to you, and you might decide to invest in bonds, mutual funds, or physical commodities.
The 5 percent rule is a little more prudent than the 50-20-30 method, so it might suit a first-time investor who doesn’t want to take a huge financial risk. This method suggests you invest 5 percent of your income (and no more) in order to minimize risk.
Although 5 percent might not sound like a lot, it could provide you with a significant return in the future, especially if you build a successful portfolio over time. One way to do that is to use robo advisors. Robo advisors are an automated way to remove the emotion from the investing equation. They perform trades for your according to your commands and can be less expensive than traditional brokers. The best robo advisors will give you good service without all the headache.
If you are on a tight budget, you might decide to invest different amounts every month depending on your outgoings. This will allow you to cover the cost of unexpected financial emergencies. For example, you might want to invest $100 one month and $25 the next. Even if you don’t have a lot to spare, it’s definitely possible to invest without a lot of money.
Hopefully, you’re also saving a little for retirement, too. If you start a Roth IRA or other investment vehicle when you’re young, compounding interest will help grow your money, even if you don’t start out investing a lot. It’s quite simple to open an IRA online, especially if you use one of the top online IRA sites. If your age is closer to retirement, don’t worry, you can still work to catch up! Remember, even a little is better than nothing.
If you want to invest, it can be tough to know just how much to spend. The three budgeting methods above will help you decide how much of your income to spend on investments.