Is there a right amount to invest each month?
There is no single amount or percentage of income that everybody should invest each month. A monthly contribution that fits comfortably into one person’s finances could be unrealistic for someone else, even if they earn the same salary.
The more useful approach is to work out how much money is genuinely available for longer-term investment after considering essential spending, nearer-term financial needs and the rest of your financial commitments. You can then decide how much of that available money you are comfortable exposing to investment risk.
If you are still deciding whether you have enough money to begin at all, How Much Money Do You Need to Start Investing? deals specifically with the starting-capital question. This guide focuses on the next decision: how much to contribute on an ongoing monthly basis.
There is no universal percentage you should invest
You may come across rules suggesting that a particular percentage of your salary should be invested every month. Percentages can provide a useful way to think about financial planning, but there is no universal percentage that is appropriate for everyone.
Two people can earn exactly the same amount while having very different amounts available to invest. Housing costs, household size, debt repayments, childcare, transport, existing savings and other financial commitments can all affect how much of someone’s income is genuinely available each month.
A percentage can also become less appropriate when circumstances change. A contribution that is easily affordable while expenses are low might become difficult after moving home, having a child or experiencing a reduction in income. Equally, somebody whose income rises may later be able to contribute more.
The important distinction is between using a percentage as a way to organise your own finances and treating it as a target that everybody ought to reach. Your monthly investment amount needs to work with the rest of your financial position.
Start with the money genuinely available each month
Rather than choosing an investment percentage first, work through what your income already needs to do. The amount potentially available for investing emerges at the end of that process.
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Start with your monthly income
Consider the income you can reasonably expect to have available during the month.
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Allow for essential and committed spending
Account for housing, household bills, food, transport, debt repayments and other commitments that need to be paid.
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Consider nearer-term financial needs
Think about accessible savings, upcoming expenses and goals for which investment risk may not be appropriate.
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Identify what is genuinely left
The remaining money gives you a clearer picture of the surplus that may be available for saving, investing or other priorities.
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Decide what portion can be invested
Only then consider how much of the available surplus you are comfortable committing to longer-term investment risk.
Your monthly investment amount should normally emerge from your wider finances rather than being imposed on them by an arbitrary percentage.
This does not mean that every pound left after essential bills should automatically be invested. The remaining money may still have several different jobs, and investing is only one possible use for it.
Saving and investing can have different jobs
Some of the money available each month may need to remain accessible rather than being exposed to investment markets. You might still be building emergency savings, preparing for a known expense or saving towards something you expect to pay for in the nearer future.
Investing is generally better suited to money that can remain invested for longer and that you can afford to expose to the possibility of falling in value. This means saving and investing do not necessarily have to be competing choices. Someone might reasonably direct part of their monthly surplus towards accessible savings and another part towards longer-term investments.
The balance between them will depend on individual circumstances. A person with substantial accessible savings and few short-term commitments may reach a different conclusion from somebody who is still building a financial buffer or expects a major expense within the next year.
If you are unsure which financial needs should normally come before investing, Should You Save Before You Start Investing? explores that decision in more detail. The purpose here is simply to establish that “money left over” and “money to invest” are not automatically the same figure.
A sustainable amount matters more than an impressive percentage
Once you have identified money that could be invested, it can be tempting to set the largest monthly contribution you can currently manage. A more ambitious contribution puts more capital into investments, but that does not necessarily make it a more practical long-term plan.
A monthly amount that repeatedly leaves you short of cash may eventually have to be reduced or stopped. In some circumstances, it could even contribute to a situation where you need to sell investments to meet expenses. Because investment values can be lower at the point when money is needed, that can undermine the reason for treating the money as a longer-term investment in the first place.
A smaller contribution can still accumulate into a meaningful amount of capital contributed over time. The key distinction is that these contributions are under your control, while the investment return earned on them is not.
These examples show only how much money is contributed. They make no assumption about investment growth, losses or charges. A higher monthly contribution increases the amount of capital you put into investments. It does not tell you which contribution is affordable for you, nor what return those investments will produce. The figures show contributions only. The actual market value of investments could be higher or lower because investment prices can rise and fall and charges may apply.How monthly contributions build over a year
Investing £50 a month
Investing £150 a month
Neither £50 nor £150 is being presented as the correct amount to invest. The comparison simply demonstrates that the monthly contribution is one of the factors you can control. The appropriate figure is the one that fits your own financial circumstances rather than whichever produces the larger annual total.
This is also why comparing your monthly investment with somebody else’s can be misleading. A person contributing £500 a month may have substantially more disposable income, different financial commitments or completely different goals. The size of another person’s contribution tells you very little about what is sustainable for you.
See what different monthly contributions could mean over time
Monthly contributions become particularly important over longer periods because each new payment adds more capital to the investment. If those investments subsequently rise in value, returns can also build on earlier gains. If they fall, however, the market value may be below the amount contributed.
It is therefore useful to keep two things separate. You can decide how much money you contribute, but you cannot decide what return financial markets will provide. A plan based on investing £100 each month gives you control over the £100 contribution; it does not give you control over what that money will eventually be worth.
The Investment Growth Calculator lets you explore this relationship using different starting balances, monthly contributions, time periods and assumed returns. For example, you can compare the hypothetical effect of investing £50, £100 or £200 a month without treating any of those figures as a recommendation.
When using projections, remember that an assumed return is an illustration rather than a forecast. Actual investment returns vary, investments can lose value and charges can reduce the amount retained. The calculator is most useful for understanding how the variables interact rather than predicting a future balance.
Your monthly investment amount can change
Choosing a monthly contribution does not mean committing to exactly the same figure indefinitely. Your financial circumstances are likely to change over time, and the amount available for investing can change with them.
A pay rise may create additional monthly surplus. A higher mortgage payment, increased rent or new childcare costs may reduce it. A large planned expense might temporarily make accessible saving more important, while reaching a savings goal could later release money for other purposes.
It can therefore be useful to review the contribution periodically and after significant changes in your circumstances. The purpose is not to adjust the amount because markets have risen or fallen recently, but to check whether the contribution still fits the financial position from which it was originally chosen.
Reducing or temporarily pausing contributions because your finances have changed does not automatically mean the investment plan has failed. Likewise, an increase in income does not mean every additional pound needs to be invested. The monthly amount remains part of a wider financial plan.
If your income regularly changes from month to month rather than occasionally, a fixed contribution may require a different approach. How to Start Investing When Your Income Changes Each Month deals specifically with investing when the amount available is less predictable.
So how much should you invest each month?
A sensible monthly amount starts with what is genuinely available after your essential spending and nearer-term financial priorities, rather than with a universal percentage of your salary. From that available surplus, you can decide how much you are comfortable committing to money that may remain invested for the longer term and can fall in value.
One useful check is whether you could make the contribution without depending on the invested money for normal monthly expenses. Another is whether you can continue meeting shorter-term saving needs and other financial commitments at the same time. You should also consider whether your finances would remain manageable if the investments themselves fell in value.
If £50 a month comfortably meets those conditions while £200 would regularly leave your finances stretched, the larger figure is not automatically the better choice. Conversely, someone with a larger sustainable surplus does not need to restrict themselves to a percentage designed around somebody else’s circumstances.
The amount can also evolve. You might begin with a modest contribution, learn how investing fits into your finances and adjust the amount later as your income, expenditure and goals change. If you are deciding whether to invest regularly or use money you already hold as a larger one-off contribution, Lump Sum vs Regular Investing: What’s the Difference? is the natural next question.
Conclusion
There is no universal amount or percentage of income that everybody should invest each month. The more useful figure is the amount that remains genuinely affordable after considering your essential spending, nearer-term financial needs and wider commitments, and that you are comfortable exposing to investment risk.
A larger monthly contribution will put more capital into investments, but larger is not automatically better if the amount is difficult to sustain. Start with your own finances rather than an arbitrary percentage, use projections as illustrations rather than promises, and review the contribution when your circumstances materially change. That gives your monthly investment amount a financial reason for being there rather than simply a rule to follow.
