when to invest in yourself how much should i invest

Little money? Invest in yourself. More money? Invest in others.

Let’s say someone is thinking about investing $1000. They find a stellar 10% annual return. Should they invest?

  • ROI: 10% is a great return by most measures
  • Total dollar return: $100 may not make a big difference

In money coaching conversations, I often get questions like: How much should I invest? And I’d often go back to basics: what are your goals?

Once I understand someone’s goals, it’s much easier to think about how money can be allocated to different buckets in life. Just as valid as any investment in the stock market (or crypto) is investing in yourself, whether that’s psychological well-being or personal development.

When the total return on investment – even if it’s a good ROI – does not change someone’s life, then I would point them to invest in something that would materially change their life. Here are 3 scenarios:

When to invest in yourself (and wait on investing)

  1. No emergency fund yet: Give yourself peace of mind by building a financial safety net in case of big life changes or job loss. A common goal is to save 3-6 months of living expenses.
  2. If you hate your job or want to earn more, it’s wise to make investments here other than betting on stocks. Investments in your education, training or networking can pay huge dividends.
  3. Capital for side hustles: If you want start a business like buying and reselling items, then it makes sense to use your capital to operate this business.
Low capital -> invest internally
High capital -> invest externally

If there isn’t much capital to play with, the biggest returns you’ll get is from investing in yourself. This can range from building a financial cushion or investing in your own education.

All of this is to say, don’t stress about investing if the potential gains don’t make a material difference to you yet.

Let that be a psychological relief if you’ve been beating yourself up for not investing enough.

With more money, it’s easier to invest externally

Investing in others = investing in stocks, bonds, or giving loans to businesses/projects you believe in.

I’ve written before that stocks are like levers for other people’s time. With more capital, you’re able to invest outside of yourself to leverage other people’s effort that goes into building a company or product.

The more capital you have, the more you can leverage your money this way. Let’s pretend there are 10% returns.

  • Return on $1000: $100/year
  • Return on $100,000: $10,000/year
  • Return on $500,000: $50,000/year

That doesn’t even take into account compound interest over time.

Don’t have much, but still want to invest?

Yes, you can have your cake and eat it too.

If investing a little bit of money does not take away from higher priorities discussed earlier, then you can still benefit from investing even with a small amount of money.

Build up the long term habit of investing. Investing means dealing with prices going up and down, and that’s the training you want. You want to get used to the movements of the market so that you don’t buy or sell in a panic. The longer you stay in the market, the better you’ll fare as an investor.

Two easy ways to do this:

  1. Acorns: passively invests extra change leftover from your transactions. Spend $9.50 at the grocery store, Acorns will “round up” and invest the remaining $0.50 in stocks for you.
  2. Robinhood: do a recurring buy of VOO (Vanguard S&P 500 ETF)

These micro-investing strategies are possible because of the magic of fractional shares.

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