If you are a beginner investor, the question of how much of your savings or income should be put towards investing is an important question that takes into account your risk tolerance and liquidity needs. You need to ask yourself how much money can be tied up in investments and exposed to the volatility of the market versus how much you need to have access to right now, in the coming months, or ten years from now. Being overeager can hurt you by stretching yourself too thin with your short-term expenses.
By factoring in your short-term goals and living expenses, you can gauge how much of your savings can be invested. Even then, however, there is long-term planning to consider. How often do you want to contribute? Is it going to be a fixed amount or percentage? Will this amount be automatically deducted? Are you going to incur any substantial future costs (ie. children, home) that will decrease this amount? A detailed budget can readily illustrate the costs you can minimize or expenses you underestimated.
While the issue of not having enough for retirement is a genuine concern, realize that worrying about it is not as beneficial as investing a small amount frequently over a long duration. But whether it is a large or small amount, understand that this plan is not etched in stone. The poeint of making any financial plan is to have something you can commit to, which allows you to be conscious of your costs and the extent of your savings. The ease of diverging from a financial plan cannot be underestimated.
Before investing, there are a few more things to realize: 1) Some investment vehicles require a minimum amount; 2) Government retirement plans have various limits and penalties for early withdrawal; 3) If you are seeking faster growth, you will incur higher risk; 4) Be mindful of the fees you are paying. This will be the single greatest cost that could substantially eat away at your savings; 5) Ask yourself what you are saving for?; 6) If you are young, you can be a bit more aggressive, realizing dips in the market are normal. But remember: long-term investing is for a period of 10 years or more. Be prepared to have your money locked into investment vehicles for at least a decade.