How Much Money to Save & Invest?

The objectives of any individual's savings and investment program are to achieve financial security and to have funds available for major expenditures. Determining how much to save and then invest depends on an individual's annual salary or wages, and the goals he has set for his life.

Set Financial Goals

A primary long-range financial security goal is to have enough money accumulated to cover your living expenses when you retire. Major expenditures over the course of your life could include purchasing a vacation home and paying for your children's college education. How much money you need to save and invest depends on these long-range plans for your life. If you intend to work beyond age 65, you will have more time to build financial security. Someone who wants to retire at 55 will need an aggressive saving program because she will have fewer years to earn money. Retirement planning tools are available online to calculate what you need to save depending on these long-range goals.

Determine Your Cash Surplus

Compare your income to your expenditures for at least the last 6 months. See how much, on average, is left over at the end of the month. If your family budget is at the breakeven point -- no cash surplus -- consider making cuts in spending to free up cash for savings and eventually for investments. Financial planners say that an individual in her twenties should begin saving and investing at least 10 percent of her income in order to plan for a comfortable retirement.

Start Saving Today

Whether you will be successful saving and investing for your long-range goals depends not only on how much money you set aside from current consumption each month, but over what time period you continue your saving and investing program. If you start saving and investing just $3,000 per year for ten years starting at age 25 you could accumulate a net worth of nearly $500,000 by the time you turn 65.

Devise an Investment Strategy

With a dedicated saving program in place, you will accumulate enough funds to begin placing them in investments such as stocks and bonds that have higher returns than the interest you are earning on the savings account. The first step in investing is to decide what percentage of these funds you want to commit to stocks and bonds. Keep enough money in savings -- at least three months' living expenses -- to cover unforeseen events, such as job loss, an illness or home repairs. The specific investments you choose will depend on your attitude toward risk. You can select a portfolio with greater potential for growth but also more risk, or be more conservative and sacrifice some upside potential for the peace of mind of having lower risk that you will lose a portion of your investment.

Adjustments through Time

The amount you will be able to save from current income will likely increase over time. Parents at the early stages of their careers and with young children usually can't save as much as a couple at their peak earning years whose children are grown. A younger investor often takes a more aggressive approach in the hopes of high returns. As an investor nears retirement he often shifts a portion of his investments from riskier stocks to those with lower risk or to bonds. His goal becomes to protect the money he has patiently saved and invested over the course of his life.