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What is the Ideal Amount to Start Investing

Many investors seek an answer to the most common question: What is the ideal amount to start investing? It depends on your financial goals.
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Start investing with the minimum amount

Due to either no savings or low savings, many investors will not have the ideal amount to start investing for all financial goals in one go. In such a case, individuals can get started with whatever amount they have and plan to save the remaining amount. Most AMCs allow investors to start a systematic investment plan (SIP) with as low as Rs. 500 per month.

Goal-based investing

Many investors seek an answer to the most common question: What is the ideal amount to start investing? Well, the simple answer to that question is it depends on your financial goals. Short answer - You can start investing with a minimum amount of Rs. 500 per month in mutual funds. Long answer - By following goal-based investing:

  1. Identify your financial goals
  2. Based on current cost, expected inflation rate, and time to achieve the financial goal, you calculate the future cost of the financial goal.
  3. Based on the risk profile, asset allocation, expected rate of return, and time available for investment, you calculate the amount you need to invest for your financial goals.

While this is the ideal amount to start investing, you may or may not have this amount, depending on your income and expenses.  So, should you wait till you have the ideal amount, or should you take some other approach? We will try to answer that question in this article.

Prioritising of financial goals

You can either get started with all financial goals at one go by investing a minimum amount, or you can prioritise your financial goals. One way of prioritising is based on the time left to achieve financial goals. You can classify financial goals into:

  1. Short-term goals: These include goals where the time to achieve them is up to 3 years, for example, building an emergency fund, buying a 2-wheeler, child’s school fees, etc.
  2. Medium-term goals: These include goals where the time to achieve them is between 3-7 years. For example, building a fund for house down payment, repayment of car loan, etc.
  3. Long-term goals: These include goals where the time to achieve them is more than 7 years. For example, building a fund for a child’s higher education and marriage, retirement, etc.

If there is a shortage of investible surplus, an investor can get started with short-term goals on priority. Then, he/she can start with medium and long-term goals as and when more funds become available.

Enjoy the magic of compounding by starting investments early

You may wonder how much will you accumulate if you get started with a monthly SIP of just Rs. 500 per month (annual investment of Rs. 6,000). This depends on your investment time horizon and the expected rate of return.

 Expected rate of return
 8%10%12%
Investment time horizon   
15 years1,75,9462,09,6982,50,520
25 years4,73,7266,490918,96,004
35 years11,16,61317,8876129,00779

The above table shows that if you start investing early in your career, then over the long term, you will be able to accumulate a pretty decent amount. Also, if you start investing at an early age, you will have a higher risk appetite and invest in equity mutual funds. They have the potential to give inflation-beating high returns. Thus, the magic of compounding will work with the time and the expected rate of return.

Importance of budgeting

Now, let us address the question of finding resources for investing for other financial goals. If you don’t have enough money to invest in your financial goals, you should follow a budgeting system.

You can start with the 50/30/20 budgeting method. In this method, an individual spends 50% of their monthly income on needs, 30% on wants, and 20% is invested.

  1. Needs include unavoidable expenses like groceries and daily use household goods, utility bills, EMIs, kid’s school fees, etc.
  2. Wants include discretionary expenses like movies and entertainment, dining out, vacations, etc.
  3. Savings and investments include When building an emergency fund, buying term insurance and health insurance, and investing in your financial goals.

The 20% of monthly income set aside for savings and investments may or may not be enough to start investing for all financial goals at one go. If it is not enough, you may continue prioritising financial goals, as discussed in the earlier part of this article.

Saving and investing for all financial goals

Once you get comfortable following the 50/30/20 budgeting method, you should shift to the “pay yourself first” budgeting method. Under this method, an individual first saves and invests towards all financial goals. The remaining income is then used for monthly expenses.

With the “pay yourself first” budgeting method, you will get the ideal amount for investing. By following this budgeting method, you are most likely to accomplish all your financial goals.

Order of fulfilling financial goals

Once you have enough resources to start investing towards all your financial goals, you should start planning for them. Ideally, you should fulfil them in the following order:

  1. Establish and maintain an emergency fund
  2. Buy term life insurance for all family bread earners and buy a health insurance plan for all family members.
  3. Fulfil financial goals as per the time available to accomplish them, starting with short-term goals and then medium-term goals and finally long-term goals
  4. While fulfilling financial goals, you should do proper risk profiling and accordingly follow appropriate asset allocation.
  5. Once asset allocation is finalised, within each asset class, you should choose tax-efficient investment products.
  6. When you create new assets, you should include them in your Will with proper estate planning.

Striking a balance between extravagance and frugality

Investing in your financial goals should not come at the cost of living a frugal life. While building a financially secure future is essential, you should not end up sacrificing present enjoyment in the process.

You should reserve some financial resources to enjoy your present life while a majority can invest in the future. You should break down your long-term financial goals into small-small goals/milestones. Whenever a small milestone is accomplished, you should reward yourself by celebrating. This way, you will continue marching towards your long-term financial goals and, at the same time, continue enjoying the financial planning journey in the present.

Investing for financial goals with Glide Invest

Whether you have the ideal amount to start investing or a limited amount, you can start your financial journey with the Glide Invest platform. You can plan and systematically invest towards your financial goals with Glide Invest. You will get guidance for:

  1. A personalised risk profile assessment
  2. Identifying your financial goals
  3. Appropriate asset allocation
  4. Making a financial plan for each goal
  5. Automating the financial plan
  6. Review and analysis of your financial plan 
  7. Hand holding you till your financial goals are achieved.

To start investing towards your financial goals, download the Glide Invest App now from Google Play Store or Apple App Store and get started.

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