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One question I always asked myself was how much I should be investing. There are always people who say, “You can invest with any amount of money”, but I wanted to know how I was matching up to my peers. How much did experts say I should invest? In this post I’ll outline what three different experts say, and add in a little advice from an older and wiser me.
The 50/30/20 rule
This rule was developed by Senator Elizabeth Warren when she was a bankruptcy professor. According to Warren, the guideline for general living is:
- 50% of your income should be spent on essentials (rent and food)
- 30% of your income can be spent however you want (movie tickets, trip to Vegas, etc.)
- 20% of your income should be put away for savings
Dave Ramsay is a personal finance expert, famous for developing the Baby Steps to achieve financial freedom. I’ve been a Ramsay fan for years, and he recommends investing 15% of your income after paying off debt and building up an emergency fund.
Ramit is an author that write on the topic of personal finance. He runs his blog called I Will Teach You to be Rich, where his philosophy is essentially not to sweat the small stuff and look at the bigger picture. He advises to max our your tax-free savings accounts and invest more if you have the money. He doesn’t provide an exact percentage, but just thinks you should invest as much as you can.
What I do
I think the 50/30/20 approach is a great way to set ceilings for what you want to spend and living within your means. But just because your income is higher than what you need to pay for rent doesn’t mean you have to increase your lifestyle spend. Every month, I’ll make sure I’m saving at least 20% of my income – if I can afford to save more, then I will.
Let me know what other topics you would like to hear about. The next topic I had in mind was a post on investing basics.
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