The relationship between budgeting and investing

Why you should consider investing

Investing can be a way to ensure a strong financial future for yourself, particularly as you get older and receive access to retirement funds. You can also develop a bigger budget if some of your income each month comes from profitable investments. The more your investments grow, the bigger investments you can make—say, buying a rental property with stock market dividends.

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Before putting any of your money towards investment, it’s important to think about why you want to invest. Are you planning for a better future in 20 to 30 years with retirement accounts? Looking for a stock marketing success? Want to just have some fun with your money? Each investment platform has different pluses and minuses and can give you a different experience, so getting clear on what you’re looking for will help you make decisions that work for you, and perhaps even determine how much of your budget you can put towards your various investment dreams.

Not only will you need to figure out how much money you can put towards investing each month, but you’ll also need to figure out what your goals are. Specific money and time goals can help the investment feel more real to you and make you more likely to commit to it long-term or more likely to try to formulate your budget for maximizing your investment potential.

Preparing to budget for investing

• Make sure the important stuff is covered first. The first step to figuring out how much you can invest or if you should start investing is to figure out your budget. You’ll need to pay rents and mortgages, buy food and even have an emergency fund. But don’t worry if after looking at expenses you discover you can only invest a small amount per month—it’s the thought and the habit that counts, and eventually the money will too.
• Start small. Rather than making a pie-in the-sky dream, try starting with goals in the hundreds or low thousand dollars, so you not only build your investment accounts, but you also build your confidence and have an easier time maintaining the investment habit.
• Think of your investments like a savings account. In general, investments need time to grow and mature, so try not to touch them unless it’s an emergency—and even then, try your emergency fund first. If your investments aren’t tied to your main account, it can be easier to not be tempted to reach into them.
• Know that investments can be unpredictable. The stock market goes up and down every day, sometimes dramatically. There are more stable long-term investment options, though. Consider talking to a financial advisor to figure out what kind of investments make sense for you with your budget and lifestyle, and if you have an upcoming or ongoing life event, like a move or chronic illness, think about how that changes your approach to investing.
• Invest and round up your change. An easy way to start investing is by doing it automatically. Some banks and certain investment apps have a program when you can link cards and accounts to their service, and they’ll round up the change to your purchases and deposit them in an investment account. You can usually choose the level of risk you’re open to and keep track of how your money is growing. This is a good option if you have some cushion in your accounts and haven’t gotten around to making a formal budget.
• Be aware of fees and taxes. When you budget for investing, you’ll also want to be mindful that various platforms and transactions have their own associated cost. Know that the full amount you set aside for investing may not necessarily end up in your accounts. Plus, remember that you will have to pay taxes on your investment income, which may become more substantial as your investments grow.

Even a little bit of money consistently and thoughtfully invested and left to grow will accumulate. So let the promise of the future inspire you to sit down and budget for investing today.