Develop A Powerful Investment Budget That Is Effective

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Investing can be risky for beginners, especially if you invest more than what you actually have. How do you keep track, though, so that you don’t go over your limit?

An investment budget.

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Investment budgets are a way to separate your personal, everyday finances from what you’re using for stocks and other investments. You can see where you’re putting money, where you prefer to put money, and whether or not you need to cut back on your risks.

When you make an investment budget, it also shows you if you’re financially stable to be investing in the first place, or if you should focus on your dent first. Just like your regular budget focuses on balancing out your expenses and income so that you’re making money each month, your investment budget shows you what you have to spare after you’ve paid off your expenses.

Ready to begin your investment budget? Here’s our guide to help you start.

Begin With Your Monthly Expenses

As with any budget, you want to start with your monthly expenses. Focus on your fixed costs – the ones that you have to pay every month that remain the same. Those would be items like rent/mortgage, taxes, insurance, utilities, loan payments, car payments, and other bills you have that are roughly the same every month.

Then, move on to your variable expenses. These are the ones that change each month but are still a necessity. Look at things like your grocery bills and gas. They may not be the same every month, but they’re still something you need.

Lastly, you have your variable expenses that are not a necessity. Consider this category as your wants rather than needs. It would include things like entertainment, eating out, buying clothes, and other expenses that you don’t absolutely need.

Calculate Your Income

Once you have an idea of what your expenses look like, you need a total for your monthly income. Add up every dollar amount you receive in a month and come up with the average. That number is what you’ll divide amongst your expense categories.

Add in Investment Categories

Now, the point of your budget is so that you can afford your investments. So, make sure you include categories dedicated to the types of investments you want. Make a note of how much you plan to spend each month if you're going to have a minimum amount in an investment account, and what you’ll do with any returns you gain.

Edit Your Budget

You’ll likely need to do some editing with your budget. Those edits will include changing where you divide your income amount to. If you notice that you don’t have enough money for your investment accounts, see where you can afford to make cuts. However, if you struggle to make it work, then it could be a sign that you’re not quite ready to make your first investment.

Use a budget to help you stay on track with investing, and to let you know if you’re financially ready to take on the new task. If you need quick funds to get you going, consider loans from companies like Credit Ninja to help you out.

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About the Author

Ankur Shah
Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at [email protected]

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