Let’s talk to you about how much of your money you should be saving, spending, and investing. Obviously this is not financial advice that you should follow right away, it is more for educational purposes that will give you something to think about. You should consult a professional financial advisor before making your next financial move.

Does the amount of money I save, spend, and invest depend on how much money I'm currently making?

This is a really important question. Let's assume that you are just making a living, you are paying credit card debt or you are paying school debt. How much money you save, spend, and invest depends a lot on how much you have to put out to other people for debt you incurred.

The first thing you want to think about is the standard stuff every financial planner is going to tell you to do. That is to get rid of the debt. There are two kinds of debt: there is bad debt and there is good debt. Good debt is the stuff you get from a house loan or something where you are paying low percent which could be somewhere around 3% which is pretty good debt. If you can build a portfolio that is growing at 12% a year then you probably want to hang on to that debt and not pay it off. You keep the money working.

Bad debt is typically consumer debt. That is the stuff you have got on your credit cards, you miss one payment and you are at 20% per year. So the first thing to do to make a bunch of money on your money is to stop giving someone else a bunch of money. You want to get rid of that consumer debt. It is not easy but you have to change your lifestyle, save money, and pay off your bad debt.

Let me tell you a quick story about how much you should save, spend, and invest. Warren Buffett was on an elevator in Omaha and there were a bunch of insurance guys in the elevator with him. There was a penny laying on the floor and all the insurance guys were standing there looking at the penny wondering if Buffett, who is famous for saving every penny, was going to pick it up. Buffett did not pick it up. They get to his floor, he steps off the elevator, looks at the guys, bends over, picks up the penny and says: “This is the beginning of the next billion”.

The truth is it is the beginning and when you start to actually get high rates of return it becomes an organic part of who you are to save money. You will not spend it when you know how much you can make on it. Same is true for the opposite effect, when you do not know how much you can make on it spending seems to make sense.

The critical thing for you to do is to learn how to invest. The saving, the spending, the investing is going to come very naturally to you once you know how to make money on money.

How can I go about budgeting how much I have to save and invest?

A budget is important. It is hard to do.It is more important when you do not have a lot of money than when you have a lot of money. Here is one thing that you could do to get thinking about how much you have to save and invest. Think about how much money you would need when you retire. If you want to live a $50,000 a year lifestyle when you retire then you need to have over two million dollars saved, so that you can put it away in bonds and live on that money for the rest of your life. That is an enormous amount of money. Not many people will have that opportunity to save that much. This is why before you think about budgeting your critical thing is to figure out how much you are going to have to put away and then work that back and the budget should flow out of that a lot better.

Should all of my savings be invested instead of sitting in a savings account? Is there still a time and place for holding on to my money?

A basic fundamental point of view is that you are going to want to have some emergency money. That is going to be the first money you put away. You have to get money there in case you get laid off, you have an illness in your family, something else happens that has a big expense. It is always a good idea to have at least six months of capital to live on if there is an emergency.

If you are starting out, you can put your money into stocks. One of the advantages of stocks over real estate or other investment options is it is easily liquidated. You can put every penny out there and you can liquidate it on a one-day notice to get it back out to have it available to you. One drawback to this is when you have to liquidate it at a bad time which is possible you might lose some of your profits. If you are starting with very little money you probably want to take some chances and put it all in the stock market. Once you grow that amount to let’s say $100,000 or so then you can put away some money for six months and just have that sitting in cash.

I hope this post gave you some ideas of where to start and what to do when it comes to saving, spending, and investing your money.