Are you investing? If not, when are you going to start?
I don’t earn enough, I can’t afford it, I have too many expenses right now – this is the story we tell ourselves.
The feeling that you need more money before you can start investing is the biggest reason that people put off that first step on the investment journey.
But here’s the truth: how much you earn is not related to your investing habits.
I know someone – a 35-year old surgeon – who is very well paid. She still hasn’t started investing. She asks me for advice… and then she always finds some reason to postpone that first step.
There’s another person I know – a security guard earning very modest wages – who has been investing diligently for years and now has an emergency fund almost equal to his annual salary.
How much money should you invest per month?
If you’re struggling to get started, the most important lesson is that any amount is enough in the beginning, no matter how small.
The critical thing is to establish an investing habit.
Starting with an amount that seems small and easy to afford is actually a great way to get going. We’re talking about an amount that seems small and easy to you – there’s no fixed number.
The right starting amount differs from person to person. To my surgeon friend, R500 might seem too little to bother with. To the security guard, the R200 he started with felt like a big commitment.
It could be as little as R100 a month – or even less. Once that monthly debit order is in place, you can start the journey of increasing it gradually.
Are there minimums to how much you can invest?
One thing to keep in mind is that the question of ‘how much’ is often dictated by the rules of investment products – like minimum amounts and application processes.
Many investments impose minimums that put them out of reach. To invest directly into the Allan Gray Money Market Fund, for example, you need R1,000 a month or a lump sum of R50,000. Many fixed deposit accounts require at least R1,000, and most unit trusts have monthly minimums of R500. These minimums are per product, which means you usually can’t split R500 or less into two pots.
Finally, the range of products is also important. Many people need both a risk-free option (for example, for an emergency fund or a short-term goal) and a high-growth, slightly higher-risk option (for longer-term investments). Being able to access these different products through one platform (and one payment) is an important consideration.
What percentage of your salary should you invest?
As a rule of thumb, you should aim to save and invest at least 10%, or one tenth, of your after-tax income. If you earn R5,000 a month, for example, aim to put aside R500.
If that percentage seems like a lot to you, the most important thing is to start small and make a promise to yourself to increase the monthly investment contribution every year (or, if you can, every three or six months).
Once the habit is entrenched you can start thinking about your budget – income and expenses – and what you want to achieve with your investing. You might even want to set some financial goals to work towards.
Believe me, small steps really get you places if you just keep putting one foot in front of the other. I did the Camino a few years ago, a 780 kilometre six week walk in Spain. Some people on the walk were slow and unfit, but they kept going at their own pace and in the end we all got to the same destination.
