This blog post is sponsored by Equivesto.
Investing can be an exciting journey. When you get started, it may seem confusing, or even overwhelming but with time, if your investments pan out, you see how your money has grown.
Before you see returns though, it’s important to understand how much you can afford to invest.
One way to do that is to first “find your numbers”. This means having a clear understanding of your variable and fixed expenses.
How to find your numbers
“Your numbers” in simplest terms are your fixed expenses and your variable ones. Once you know how much you need to pay your bills and expenses that happen every single month, and you get a general understanding of your miscellaneous spending, you can automate your cash flow and also create better financial strategies for your life and your future.
Having money clarity will make financial planning easier for you. To find out how much you can invest, the first step is to know how much you pay in bills and other expenses that are due every month or on a fixed schedule. The easiest way to do this is to pay your bills using the same credit card and download the bank statements at the end of the month. If you can get 3-6 months of bank statements, you can find the total amount you’ve paid for your bills and also find the average.
Another way to easily acquire this information is by connecting your bank account(s) to a 3rd party budgeting software. There are many free ones online and they can clearly identify your fixed expenses. These include:
- Mortgage/rent
- Utility bills (cable, cell, electricity, water, etc.)
- Lease / car loan payment.
- Vehicle insurance (if paying monthly)
- Property taxes (if paying monthly)
- Home/tenant/car insurance
- Childcare
In addition to these fixed expenses, add groceries and any other “needs” to this category. Even though the amount you spend fluctuates, you need groceries every month.
After you know your fixed monthly expenses, and how much you need to spend on necessities, calculate your total. Then, find how much you generally spend on your “wants”. These might be:
- Beauty
- Eating out
- Electronics and gadgets
This is “knowing your numbers”. When you complete this exercise, you know how much you spend on needs and wants and you can then see where you can find the money to invest.
How much can you afford to invest?
Investing is best suited for people who have an emergency fund, and those who do not have high interest debt. After those two financial milestones are met, investing can help you reach a financial goal faster because of compound interest and returns. Before creating an investing plan, it’s a good idea to “pay yourself first” which essentially means automating your savings, or treating savings like a bill payment and ensuring you are setting money aside.
Then, once you pay your bills and fixed expenses and there is money left over, consider taking a chunk of that to invest.
The amount of money you want to invest depends on your income, expenses and your goals. If you have a short-term goal, you may need to invest more aggressively to ensure you have the money you need in time. If your goal is in the far future, 20+ years, you may be able to invest a few hundred dollars a month and still reach your goals.
Another factor that will help you determine what amount of money you should invest each month is the platform you use.
Investing Platforms and Fees
In Canada, you can invest through various platforms including your bank, a robo advisor, or an equity crowdfunding site like Equivesto. Many of them do not have a minimum investing amount but some of them require you to start with $500, or even $1000.
At Equivesto, exciting investment opportunities are waiting for you! You can start investing with as little as $100.
Equivesto helps retail investors access private company investment so you can support start-ups and benefit from their growth.
There are limits set by both the regulators and Equivesto on how much each person is allowed to invest based on their profile. When you sign up to the Equivesto portal, you provide information about yourself and your financial position, which they use to determine if equity crowdfunding investments are a good fit for you.
This is designed to try and protect new investors from getting carried away or taking on too much risk.
At the end of the day, you should never invest more than you can afford to lose.
