Friday, November 02, 2007

How much should you invest? Look at your earnings curve.


While many of us concentrate on investing wisely, how many of us ask ourselves "I my investing enough"? And how do you know if you are investing enough?
  1. One way is of course by setting yourself some goals, e.g. somebody wants to make $1m by the time he is 40, another enough to be able to retire at the same age and then working backwards to where you are now.
  2. Another may simply match interest rates or stockmarket indices.
  3. Another way is to match your spending, so every Ksh/$S/£ you spend, you put another in your investment/savings.
  4. You can also set yourself a target that mirrors your earnings e.g. 30% of your income.
One of the ways that you can figure whether you are saving enough is also to look your future income streams based on your age . Align this with research that suggests the earlier you start saving/investing, the more you can expect to reap in the long-term. As this article by Gathunuku suggests, saving higher when you are younger definitely pays.
 

3 comments:

Ssembonge said...

That graph is very interesting. It looks like I have a few years before my pay plateaus. May be the plateauing represents changing jobs due to forced lay-offs.

MainaT said...

The plateau represents that fact that on average once you get to middle management, your career slowsdown because promotion to senior management is depedent on a lot of factors outside of your control.

Neil said...

The ideal investor should increase his / her investments each year by the same propostion as his / her salary has increased