So you’ve just opened up an investment account but you’re not sure how much to regularly put in?
Well, good job you’re a part of Monty’s Money Brief newsletter club ay 😉
In this post I’m going to break down a method you can use to find the optimal allocation towards your monthly investments, without stretching yourself too much either. This strategy will allow you to start fuelling the tank of your financial freedom fund and live the life you one day dream of.
But first…
I want to debunk some garbage I’ve been seeing lately on social media.
Lately, I’ve been seeing many posts stating how:
by 25 you should have ‘X’ amount saved
by 40 you should have ‘Y’ amount saved
and by retirement you should have ‘Z’ amount saved
Ignore these kinds of posts!
You see, what most fail to realise is that everyone’s journey is different. I mean we’re talking about personal finance here, the clue is even in the name - ‘personal’ finance.
Your journey to financial freedom is unique and therefore it makes absolutely no sense to compare your numbers to the ones you see on social media, they’re nothing but guilt trips.
Instead of comparing yourself to these outrageous numbers, which influencers seem to be plucking out of thin air, focus on your own financial journey, everything else is honestly just background noise and should be taken with a pinch of salt.
I think now is a good time to go over the main topic of this week’s newsletter - how to find your optimal monthly investment allocation. It’s a method/rule of thumb that I’ve been using for the past 3 years and has helped me build my Vanguard portfolio to over £57K.
It’s known as the:
50/30/20 Rule
The 50/30/20 rule is a guideline for personal finance management that’ll help you allocate your income across different categories. It suggests dividing your after-tax income into three main buckets: 50% for needs, 30% for wants, and 20% for savings/investments. Let's break down each category:
1. 50% for Needs:
This category includes essential expenses that are necessary for maintaining a basic standard of living. These typically include:
Housing: Rent or mortgage payments, council tax, utility bills etc
Transportation: Car payments, fuel, insurance, and public transport costs
Food: Groceries and essential household items
2. 30% for Wants:
This category covers discretionary spending on non-essential items or lifestyle choices that enhance your quality of life. Examples include:
Dining out at restaurants and ordering takeout
Entertainment: Movies, concerts, streaming services
Travel: Long breaks, weekend getaways, and exploring new experiences
Hobbies: Expenses related to hobbies and personal interests.
Fashion and personal care: Clothing, accessories, skin/hair products
3. 20% for Savings and/or Investments:
This category focuses on building financial stability and securing your future, which includes allocating 20% of your income towards a savings and/or investment pot.
If you already have an emergency fund (a savings pot worth 3-6 months of your income) then well done, you’re already ahead! You can allocate the whole 20% towards your investing pot.
If you don’t have an emergency fund then it would be wise to use the 20% on building up your emergency fund and only after you have reached 3-6 months worth of income saved up consider allocating money towards investing.
*The reason I say this is because with investing comes risk, and it is wise to have a chunk of money (an emergency fund) stashed away in the event of economic downturn.
So let’s put some numbers behind this category could look like for you. The average take-home pay in the UK is £2,297 per month. Assuming you already have an emergency fund built up, using the 50/30/20 rule you could put £459.40 (20% of £2,297) towards individual stocks, ETFs, index funds and other high-performing asset classes.
If you were to invest that £459.40 every month with a 10% annual rate of rerun then you would have over £1,000,000 invested after 30 years 💰
It's important to note that while the 50/30/20 rule provides a useful framework for budgeting, it's not a one-size-fits-all solution. Personal circumstances, financial goals, and lifestyle choices may require you to make adjustments to this guideline.
For example, right now I can invest significantly more than just the 20% rule of thumb, as I currently have minimal outgoings and still live at home with my parents. However, as I have just recently bought a house and will be moving into it within the next couple of months I will need to re-evaluate what % I can allocate to my investments.
Ultimately, what you can invest per month boils down to your personal situation and what you feel comfortable with. The 50/30/20 provides a great ‘rule of thumb’ framework but you may need to reduce/increase the standard 20% towards investing depending on your other financial commitments.
Resource/Side Hustle Tip of the Week
In this week’s resource/side hustle tip, I want to share with you a platform that I’ve personally been using for almost a year now and has made me over £500.
What is the platform you ask?
Welcome to User Interviews
User Interviews is a platform that pays you for your opinions and insights.
Believe it or not, companies will pay you for your feedback and thoughts on their products before they launch to the general public.
How do you benefit from the platform?
The benefit to you is that you can use this platform as an additional source of income, as the research studies offer compensation in the form of cash or gift cards. As mentioned previously, I have made more than £500 in the past year from participating in interviews, surveys and usability tests.
This really is easy money.
How do companies benefit from the platform?
The platform provides access to a diverse pool of participants (people like yourself who have joined the platform), allowing said companies to recruit individuals who match specific demographics, behaviours, or preferences relevant to their research needs. This ensures that they gather insights from their target audience, leading to more relevant and actionable findings.
How does it work?
You ‘apply’ for the opportunities and then the company that posted the advert will either accept or reject you depending on whether you match the specified user criteria they are looking for.
As you can see from the above screenshot, each opportunity will have a fixed payment - this is the amount that you will be paid for participating in the study, in addition to the amount of time the study will take.
As an example, $100 for 60 minutes of your time isn’t too bad, right? 🤑
Join User Interviews here
🔔If you sign up via my link we will both receive an extra $10 after completing your first study
I hope you enjoyed this read. If you have any questions, simply reply to this email.
I’ll catch you back here next Sunday
over and out ✌️
Monty L.
