“I know where to invest I just don’t have the money”, “I am waiting for my appraisal and then I will start a new SIP”… There is a long list of quotes with similar meaning that I hear from my friends. The crux is that they know where to invest but they don’t think they have funds available at the moment. Here is what my advise always is : “If you know the right avenue to invest, go ahead and invest. Rest of the things will fall in place.” Hence, the answer to when to invest is, NOW.
But I have expenses, what about them?
Unless you are telling me that all your money goes in house rent, food, education and transportation, trust me you do have money to invest. The problem is :
- Either you don’t know where you spend each month
- You think your life would be very difficult even if you reduce one Rupee from your spend.
For 1., I have listed a “Mantra to reduce expenditure” in my post about how can you retire early. For 2, it might be a pain for a couple of months but as humans our ability to adjust is way greater than what we imagine.
What I do that can be a guide for you?
Whenever I find a good investment avenue, I go ahead and invest. I shall discuss about how to decide how much to invest ahead. Once I have done that, I wait for a couple of months and take stock of if we are able to adjust or not. There are three possibilities here:
- We didn’t feel a difference. In this case I go ahead an increase the investment a little more
- We felt a pinch but we readjusted. In this case I maintain the investment.
- We felt tremendous pressure and either were on the verge of breaking an investment or borrowing. In this case, I roll back the investment or stop making more investment in case of a monthly investment plan.
There is no one size fits all answer here. You would have to try out and check yourself if you can afford to invest or not. But for that, you would have to take the first step and invest. Most of the investments these days can be easily rolled back without any penalty. Yes there are certain investments where there is a cost to roll back, for those you may want to be more meticulous. But generally, if you think there is a good stock you think you should buy, a new sip you should start or start monthly investment in NPS, go ahead.
But how to decide how much to invest?
This topic would merit an entire blog post around how to allocate your portfolio. I would not get into portfolio allocation here, rather the case when you have an investment opportunity and you have decided to invest then what amount would make you comfortable without making you feel that you are sacrificing something.
Let me demonstrate this with a real life example from my life. Recently, the organisation that I work for started offering investment to NPS via corporate. There are two ways to invest in NPS and you may want to read more about it in my post about NPS being a good option.
Firstly, I made sure I understand if NPS is a good option. Once I had that clarity and wanted to invest in NPS, I had to choose when to start investing and how much amount to invest. For when to start investing, my answer of course was now. For the amount, I could choose between 0 to 10% of my basic salary. Since, I had to ability to change this percentage every month I started off with the max. i.e. 10%. Since both my wife and I have been on the FIRE journey for a couple of years now, most of our spending is fixed. Hence, we did feel a pinch the next month and had to take some money out of the emergency fund. Post that I readjusted the contribution to 6%, which is a comfortable level for us.
In all, we ended up saving more and reducing our expenses in such a manner that it didn’t feel sacrifice. Next time if you encounter the question of when to invest, then the answer is now.