Module 2 - Part 4/5: How much money should you invest?

In this article, we break down the 50/30/20 rule.

Welcome to the EasyEquities Mentorship Program, where we make investing EASY for you!

We have prepared 6 modules that we will post on FinMeUp over the month of July.

The modules are intended to give investors the necessary knowledge to start their investing journeys.

Lets get right into it.

The 50/30/20 rule

To reach ones investment objective, investors typically follow the 50/30/20 rule. What is this rule and how does it work? Figure 1 [refer to the image attached] illustrates the idea behind the 50/30/20 rule.

The rule states that investors should budget their money by allocating 50% of their funds to needs (such as food and rent), 30% of their funds to wants (Entertainment, etc), and 20% of their funds to investments. If this is not possible, try to make sure that you try and invest some money every month or every second month just to form a habit.

This is a sound method to follow, but one should not feel obliged to follow it. Investing even R50 or R5 a month is better than nothing. It is also when the learning truly begins. There are financial gains to be made, however, knowledge compounds too and that is not talked about enough.

Pay Yourself first

Paying yourself first is a great way to ensure that you invest every month. This means that whenever you get paid, you deposit money into your EasyEquities account before you spend that money. This allows individuals to spend less than they earn and invest a little bit every month. It draws down to making investing a habit. 

This is one of the golden rules that has been passed on for decades.
Remember to let compound interest do what it does best, compound.