DWAYNE JOHNSON X ACORNS
Help grow your money with the Mighty Oak card
4 min

How Much Money Do You Need to Start Investing

Dec 19, 2022
in a nutshell
  • Consider the 50-30-20 rule—putting 50% of your budget toward needs, 30% toward wants and 20% toward saving and investing for future needs and goals.
  • Do the best you can and save whatever amount makes sense for you to start.
  • Beyond covering your needs, identify your goals and decide for yourself what is important to you.
Image of That first step to start saving and investing—even just a small amount—can be the hardest.
in a nutshell
  • Consider the 50-30-20 rule—putting 50% of your budget toward needs, 30% toward wants and 20% toward saving and investing for future needs and goals.
  • Do the best you can and save whatever amount makes sense for you to start.
  • Beyond covering your needs, identify your goals and decide for yourself what is important to you.

Investing is a key money move that can help you achieve your financial goals. So you should try to invest as much as possible, but keep in mind that investing comes with risks.

To figure out that maximum amount for your unique financial situation, you need to make a plan. Most of your budget is likely dedicated to covering basic expenses, like housing, transportation and food—your needs. Another portion goes toward your wants, like hobbies, dining out, going to the movies—the fun stuff. But some of your budget should be allocated toward future goals, like building up an emergency fund, going on a big vacation, buying a home and retiring one day—and that’s where investing comes in.

So how much is that?

Only you can determine your actual hard numbers. One budgeting model many experts recommend is the 50-30-20 rule—putting 50 percent of your budget toward needs, 30 percent toward wants and 20 percent toward saving and investing for future needs and goals. Of that last 20 percent, consider investing whatever you don't expect to need for at least a few years. That time-frame allows you to take on the risk of short-term losses and ride it out to capture potential long-term gains.

So, if your monthly budget starts with $10,000, that means you should work to set aside $2,000—and depending on your goals, that’s the maximum you’d want to invest.

But one formula doesn’t work for everyone. Especially when you’re just starting out, your entry-level salary may feel like just barely enough to cover the necessities. Don’t sweat it. Just do the best you can, and save whatever amount makes sense for you to start.

How do you figure out how much is right for you? First, you have to get your priorities in order. Beyond covering your needs, identify your goals and decide for yourself what is important to you.

Maybe paying off debts is a top priority. In that case, you want to make a debt-repayment plan, first tackling high-interest-rate debts, like credit-card balances. But then maybe you can prioritize investing for the future ahead of paying off low-interest loans on the books, like student-loan debt or a mortgage, faster. You’d continue to pay down that debt, but invest some of your money at the same time.

Or if establishing an emergency fund is a big goal, you can first shoot to set aside at least $1,000 to start—that’s likely enough to cover a common unexpected expense like a car repair or a minor medical expense. But once you've done that, you could consider slowing down your efforts to fully fund your emergency account (which ideally would hold enough to cover three to six months’ worth of expenses). Then you can redirect some small portion of that savings to investing for the future, even if it’s just $50 or $100 a month.

Is it really worth investing such a small amount?

It may be small, but it can be mighty. Given time, the little amounts you’re able to squirrel away in an investment account can have the opportunity to grow. (That’s why Acorns lets you start investing with just $5.)

Just look at the math: Let’s say you set aside $100 today, plus another $100 every month, at an interest rate of 1 percent compounded monthly, which is about what you can expect from a savings account these days (though with rates rising over the past couple of years, you may be able to do better). After 40 years, you’d wind up with more than $59,000. Not bad.

Even better: If you invested for the long-term in a well-diversified stock portfolio, with a hypothetical 7 percent annual return, you could have just over $240,000 after 40 years. Sure, that may not be enough to retire on, but remember that’s based on investing less than $25 a week.

Then what? How do I save and invest even more?

You’ll want to take advantage of inertia. That first step to start saving and investing—even just a small amount—can be the hardest. So once you get going, let your momentum propel you even further. Consider setting up recurring contributions to your savings and investment accounts to make it as easy as possible. Setting up regular investments also lets you take advantage of something called dollar-cost averaging.

What is dollar-cost averaging?

It’s a strategy that has you regularly invest the same amount of money over the long term. So if you automatically contribute to a 401(k) with every paycheck, for example, you are already dollar-cost averaging.

What are the advantages of dollar-cost averaging?

Not only does it allow you to start investing as soon as possible—rather than waiting until you’ve accumulated a big chunk of money to invest—it also helps you buy more when prices are low and less when they’re high.

There’s also a psychological benefit: While the general direction of the markets is up over long periods, you can expect plenty of downs along the way. And that natural market volatility inherent in investing can be a lot for anyone to stomach. Dollar-cost averaging can help calm any investing anxiety you may have because it forces you to follow a routine and roll with whatever market movements come each day. Just be sure that you set up automatic contributions, so you’re not tempted to spend it instead.

Then try increasing the amount you save each month. Some retirement accounts may even offer an auto-escalation option, which would automatically increase your contributions. And whenever you get a raise, boost your monthly savings proportionately. Before you know it, those small boosts can add up to big savings, and you’ll reach that attractive model size of 20 percent a month—or even more. As you aim to increase your savings percentages, be mindful that many investment account types have annual contribution limits.

What else can I do to maximize how much I invest?

Add in whatever extra you can. For example, if you’re lucky enough to score a bonus at work, a cash birthday or holiday gift, a tax refund, additional income from a side hustle or some other special lump sum, consider putting it right to work and investing it. By going all-in with that windfall—rather than gradually investing it in smaller portions—you maximize the time that money spends in the market, which means more time for it all to potentially grow and benefit from compounding (i.e. when earnings grow on top of earnings and so on).

Try our compound interest calculator to see for yourself! 

So what’s the best investing strategy for me?

Why choose just one? In general, most investors do a mix of both. It all comes down to what your goals are and what you are comfortable with. 

Whatever strategies you use, you should consider investing through a tax-advantaged account like a 401(k) or IRA for retirement and an individual investment account for goals you want to reach before you’re 59½. (Acorns offers both.) Using a mixture of account types helps you put your investments to work while providing access to different things like contribution limits, withdrawal rules, and tax advantages. Be sure to research which account types fit your individual situation. And try to invest in more than a few stocks, so that even if some go down others may be up. Experts usually recommend a diversified portfolio with a broad mix of stocks and bonds.

Learn more about investing with Acorns.

This content is for informational purposes only and is not intended as financial advice. The views expressed are generalized and may not be appropriate for everyone. No level of diversification or asset allocation can ensure profits or guarantee against losses. Compounding is the process in which an asset’s earnings are reinvested to generate additional earnings over time. The first illustration shows hypothetical investment projection that assumes a 7% fixed annual rate of return, compared to a 1% saving rate of return, each with $100/month contributions over a 40-year period, exclusive of fees. 7% (investing) and 1%(saving) annual returns were selected as an arbitrary figure to show the potential long-term investing and the potential of compounding vs saving only. Such results do not predict or represent the performance of any Acorns portfolio and do not take into consideration economic or market factors which can impact performance. Actual clients will achieve investment results materially different from those portrayed. Acorns is not a bank and does not offer a savings account. Savings accounts are typically fully liquid and considered low risk due to the safety of principal, FDIC Insurance, and can be less expensive when compared to investment accounts. Investing involves risk, including the loss of principal. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. 

This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.

Stacy Rapacon

Stacy Rapacon is a freelance writer and editor, who has specialized in personal finance topics— including investing, saving for retirement, credit, family finances and financial education—since 2007. 

Acorns Logo
Acorns
Invest spare change
Get started Get the app