Have you ever find yourself asking questions like how much money should I have before investing? What is an emergency fund? Why do we need an emergency fund? Then you are at the right place to find your answers.
Look, it would be great when you have a little bit of extra money set aside.
That you can use to cover any setbacks that life throws at you right! Charlie Munger calls “the natural vicissitudes of life having an emergency fund not only help you out in a pinch, it will also help you sleep better at night”
An emergency fund is a reserve of money that covers expenses you wouldn’t normally plan for.
These are things like a car wreck that might not have enough insurance to cover maybe damage from a storm that isn’t totally covered by insurance may be some expensive medical bills hospital visits or an unexpected layoff.
These are the basic thing that you have to takes care of before you start investing and we are going to give you brief information with an example of how much money should you have before investing? which is also called emergency funds before investing.
If you are also wondering how much money should I save before investing in real estate or how much money should I save before investing in stocks then we are also going to talk about that later on so stay with us for that. Now let’s see the basic importance of emergency funds and how much and why we need them before you start investing.
Table of Contents
How much money should I save before investing?
Let's talk about the saving that you need before you invest on something which helps you to recover your financial status. Having a little extra money saved up will cover any unexpected expenses.
It will not only help you out in a pinch but also gives you some peace of mind before you learn investing.
First, let's check out the basic rules and benefits of emergency funds :
- Helps you to prepare for unexpected events
- Save enough for 3-6 months
- The funds should be liquid
- It keeps you from spending your money on a whim
- Don't worry about entertainment, vacations, dining out, or partying
- Find the number that's right for you
- Make a plan before you execute in the real world
How much money should I have before investing?
The straightforward answer is: It all depends on your current financial status and what industry that you get into.
First, for the most, you need 3 – 6 months of capital before you are really able to expect to get a job again and the reason to have one is really simple you don’t know what’s going to happen in your life.
Sometimes you just need a little extra and it’s really good to be prepared so how big should your fund be. Most people will tell that you need 3 – 6 months of living expenses but that all depends on your own financial situation.
If things are pretty stable you may only need about three months. If you’re the only owner in your household then, you should be more concerned and aware of it, So you maybe need to save some more funds that should be liquid.
This means that you can get to them quickly you can keep them in a separate savings account. That’s the real trick, where you can access them whenever you need to but here’s the thing “if you put your money in a savings account it’s not going to grow.”
It’s going to be there for sure if you need it but it’s not going to grow.
Another way to think about it is maybe learning Rule 1 Investing. You have the money invested in companies that you bought, which is super cheap with a big margin of safety. So, if you need to get the cash out of the market you can get it out without taking a loss.
Another benefit of having an emergency fund is that if you do it right it keeps you from spending your money on a whim because it’s not that accessible. There’s a saying – “out of sight, out of mind” and the same is true for how you store your emergency money.
If you have a large store of extra cash then you don’t readily have to have it at the moment. You may find yourself wanting to spend some of it on new things which don’t help you to increase your income level.
Let’s say: The problem with buying a new TV is that, if you’re really good investor you’ll be able to double your money in every three – five years. But you go down the road about 20 years that new TV cost you about five hundred thousand dollars so keep the money in a separate account and don’t touch it.
You’ll save a lot of extra money that way and the reason is that you’ll never see it unless you absolutely have to have it and that’s the whole point isn’t it?
So sit down and calculate how much you need to live for three to six months for most people might be between $10,000 – $15,000. So start saving that money to protect yourself from the things that life can throw at you at any time.
Now, when creating how much you need for three to six months you want to take some things into consideration like accounting for your housing, your food, healthcare, utility, debt,
Don’t worry about entertainment, vacations, dining out, or partying, because it’s pretty likely you’re going to cut all those things out of there.
So you’re really looking at just the bare bones, always keep in mind that, three to six months is a good rule of thumb.
If you’re working in a high-risk industry where layoffs are common your income isn’t steady or if you’re retired, so always keep in mind you need to do what’s best for you to find the that’s right for you.
Now one of the most important things about an emergency fund is that you only touch the fund for emergencies, that are urgent and unexpected. It might seem like your fund is just sitting there doing nothing but it’s giving you some really great peace of mind.
For example, A trip to Disneyland is not an emergency and it’s not unexpected neither is Christmas. Neither are those birthdays weddings all those things are plan about and you need to plan for them that’s not for your emergency fund.
When you make a list or calculate the amount of money that you have to save up figure out the necessary things which you can’t ignore in the first place.
Question | Leave a comment below
- How much money have you set aside for an emergency fund?
- How much time did you give to yourself?
- What are you doing with that emergency fund?
Now I’d love to hear from you guys, Is it really just sitting in a savings account at 0.1% or you put it in a brokerage account invest like a rule 1 investor and make 10% -20% a year on it while having it ready for an emergency.
So leave a comment below with your answer and I’ll be sure to follow up with you. we expect some controversy about investing in an emergency punk.
How much money should i have before investing in stocks?
Investing in and trading in the financial markets is the only place in the world where you can make an unlimited amount of money. Can you make millions of dollars? Yes, you can.
However, You would need to use hundreds of millions of dollars to do so.
Quick set up (how much money should I save before investing in stocks):
Put your first 5k-10k in a savings account as an emergency fund
Start reading books. Here is a good list of books, maybe start with 5- 10 Books. (Best Books To Read For Stock Market Beginners)
Set up your TFSA’s with your bank account and you can start transferring extra money from your account into your TFSA.
Those books will help get you started on what to look for, how you want to invest, and just start screening and researching until you find Stocks or ETFs or Index funds that you like and invest whatever you like from there.
Anyone can learn to invest in the stock market and the amount of money you make is totally up to you and your financial knowledge.
When first starting out you should only start with a small amount of money to test out your rule-based trading plan you will have composed to work in the live markets and that’s only after you have completed the required education and training, that will help you to work in this business as a self-directed investor.
The education and training can take a long time, some people catch on right away and become successful at doing it while others it can take a while to get it.
It is said that it takes the average retail trader 18–36 months to become proficient enough to manage their own money in the live market and be consistently profitable doing so. I know that’s not what you want to hear however it is the absolute truth.
You can begin trading stocks in the live market for as little as $400-$500, it doesn’t mean you should. If you wish to earn while you learn that would be the smallest amount of money.
You could get started with and it should be DPI(disposable income) that cannot hurt you if you have an unfavorable experience the first time in.
Most of the beginners on the stock market trading and are unprepared lose an average of 40 thousand dollars the first year in the business, don’t be that trader all right.
Take your time, get the right education, practice on the low-risk stocks, and read books that help you to learn more about your business.
From the first day itself, you should have the mindset to make aa lifelong skill to earn unlimited amount of money from anywhere in the world day or night, sounds nice right, THEN DO IT NOW.
How much money should i need before investing in real estate?
The answer of how much money should i save before investing in real estate? It not that difficult as it sounds.
Well In my opinion I don't think you need any money to start in real estate and that's the beauty of real estate investing. If know Robert Kiyosaki or Grant Cardone then you might already know-how! If you don't Let me explain.
The most common idea that people have about Real Estate investing is that you need to either already be rich, or have hundreds of thousands of dollars saved up. But here's a secret, you don't really need any money, all you need to be really successful is a little FInancial knowledge because most people lack financial literacy.
When you get the right education, you will be able to achieve an ‘Infinite Return’ on your Investment. This essentially means that you need not put any of your own money in the deal, and you'd still receive some income from the property that you invest in.
Now, there is no such thing as “no money investment” or “free buying” because someone’s money is going to be invested, the catch is who’s the money it’s going to be. In an ideal situation, what you would do is to do your conscientiousness on the property you think suits you.
And here is the thing >> Find a bank to get a mortgage, convince the seller to offer seller financing such as seller carry, and pay down the downpayment to the bank and you simply rent out the property and use the rental income to pay off both the mortgage and the seller over time.
One thing that you have to keep in mind, This does not guarantee you will make money, because if the rental income is not equal to or more than the property’s monthly expenses like the mortgage and seller payments, maintenance, and property taxes, you could end up losing money.
This is why you need to have some good knowledge on real estate investments so learn the basic fundaments, you don’t have to do anything just find some good adviser on YouTube who teaches these stuff like Robert Kiyosaki, Grant Cardone those are my two biggest informers on real estate investing who gives so much information about investing on real estate so check the out before you “buy” the property.
You can also read a lot of books on real estate investing where you will get someone’s 10-50 years of knowledge & experience in a single book which is absolutely mind-boggling. just get those books and read them now.
You make your money when you buy, not when you sell all right.
Make sure the property isn’t overpriced and is actually worth the money, do your own calculation and use of common sense buddies whether it’s worth it or not, otherwise your monthly bill from the bank is gonna be a whole lot bigger and I can see you’ll end up crying on the toilet which looking your bills, don’t do that.
And if it’s MDU(Multifamily residential), make sure the units are all clean, fixed up, and not damaged. Unless you are looking to invest in troubled real estate, which also does have high-profit margins if done correctly but you have to invest more money to get it done.
My advice to you, if you are a beginner investor, you should probably save up some money in case of emergencies which I’ve mentioned earlier in this article.
No specific amount, because it really depends on what kind of property you are interested in.
There are four types of real estate out there on the market:
- Residential
- Commercial
- Industrial
- Land
Residential and commercial are the most popular ones which you might have looking for and commercial real estate is basically offices, retail, or self-storage.
So my last piece of advice to you, Invest in your financial education before you invest in real estate. Get some good insights about your business, why you want to learn, what are the mindsets that you have to build depending on where you live in.
Most Important: Don’t even take my investment advice, in fact, make sure you double-check it online and buy a few books to educate yourself, and maybe get a mentor too, if you can afford it in the first place because, I don’t want you to face any trouble. good luck.
Conclusion:
End of the day there is no exact money that you should have before you start investing whether you want to spend on stocks or real estate.
It’s totally up to you and your financial conditions and where you are right now. If you are just starting out then my advice to your start with very small and try to practice on low-risk investments.
Also, read books on investing which will help you to expand your knowledge much further.
I hope you got the answers to how much money should you have before you start investing and if you have anything on your mind let us know in the comments section below.
Disclaimer : This blog is written to early investors to consider the issues that may arise in while investing. The information provided is for general and educational purposes only. It is not intended as legal advice for your individual circumstances. Please consult your lawyer for advice specific to you and your investing goals.