Can I Afford to Invest?

Have you thought about investing your money, but not sure if you can afford it? A seemingly simple question can result in a complex answer. Everyone’s income, expenses, goals, and aspirations are different, but a general rule of thumb is what you invest each year should be based on your goals.

But why even invest in the first place? Though investing your hard earned money can be intimidating, it is essential in order to grow your funds for retirement and keep pace with inflation. Investing is an important part of any financial goal plan.

Let’s take a look at how you can make investing attainable with the income that you have.

First things first, you must set the goals that you’d like to achieve. Maybe it’s to buy a home, start a family, or live comfortably after retirement. That may seem unrealistic to some, especially for those just getting started. But remember to not let this limit your goals as it is likely your discretionary income will increase over time.

Let’s say one of your goals is to retire at the age of 67. You can utilize a retirement calculator to determine how much future income you will need to maintain your current lifestyle and what you will need to save monthly to attain it.

Next, you’ll have to create a spending plan around your determined monthly savings needed to reach your goal. For example, if you must save $350 a month to retire at your desired age, then it’s important to put that money into your savings or investment account first and figure out what your monthly expenses can be with $350 less. This can help you analyze your current expenses and potentially eliminate frivolous spending, providing for more savings and funds for investing.

Not all investments can be considered equal. Some are more risky than others and you should take great consideration before choosing an investment. If you are younger and looking to invest, you have more time, so in general, you may be able to take on more risk with the hope of a greater return. If you are closer to retirement age, you may need to be more conservative. In either case diversification is important.  

As always, it is important to consult a financial advisor that can assist in helping you plan for your future.