Determining how much Money you should Invest

Determining how much money you should invest is never a simple decision. There are many factors that go in to investing. What are your goals? How much money do you make? What are your expenses? How much can you afford to loose if the investment goes bad? You must ask yourself each of these questions before you can arrive at a dollar amount to invest. Let’s take a look at each of the questions.

What are your goals?

Before investing any amount of money, it is vitally important to establish your goals. Saving for retirement is different than saving to buy a house in five years. If you are trying to just keep a hold of the principle and not make millions, you are going to invest in safer holdings. If your goal is to be risky and make money NOW, you are going to want to invest more of your money in riskier areas.

Once you have a feel for your goals, you can start to make a foundation for deciding how much of your money to invest.

How much money do you make?

This may seem obvious, but the more you make, the more you are going to have to invest. If you make $100,000 per year, you have more money to play with than someone who makes half of that. Of course, the equation is a little more complicated than that. More income means that you are more likely to absorb losses as well.

What are your expenses?

This is a correlate to the income question. If you make a lot, but you have a lot of expenses, you are going to have a hard time finding a lot of money to invest. If you are able to cut back on your expenses, you will have more residual income left to put in to an investment at the end of the month. The less you spend, the more you have to save. This may seem like obvious advice, but many people forget this part of the equation.

How much can you afford to loose if the investment goes bad?

This is an essential part of the equation in determining how much to invest. As a general rule, the riskier the investment you make, the more potential it has to make money. Of course, there is more risk of loosing money as well. It’s never a good idea to risk more than you can afford to loose. Taking the last of your savings when you are unemployed and buying your Uncle Bob’s Llama Farm is probably not a good idea. When the llamas get sick and die, you are going to end up homeless, or at least living in an abandoned llama barn. And those can get really damp and smelly.

There really is no set formula on determining how much money you should invest. However, if you sit down and map out the answers to some of the above questions, you should at least get a general idea of what you should be putting in to an investment. You have to start somewhere, and starting with some of the simple questions is always smart.