How much of your income should be going into investments?

One of the most important questions people get is about investing. Specifically, how much of their money should they be put into investments that will grow and generate funds for them to use in the coming years?

It's recommended that you start by calculating your annual cash flow and set aside at least 5% of it for investment accounts paying better interest rates or higher growth (typically called stocks).

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That is, if you have $10,000 per year coming in to spend or save after taxes, you would put away $500 in investments leading to higher returns. And you should do this each year moving forward as part of a regular savings plan.

Understand the factors affecting investment portfolios

Before determining what percentage to invest between investments and of funds into taxes, it is important to understand the complexity of these decisions.

Understanding the factors - investment brackets and rates, income tax brackets, and your unique financial situation - can make all the difference.

Contributing a fixed percentage can be helpful if your income is consistently predictable as well. When financial positions change or are more complex, it is usually better to evaluate how much should be allocated differently each year.

This way you will not overpay for taxes when the stock market has a bad year but also not face hefty taxes come payout day when assets have performed well.

How much should the answer depends on factors like demographics, tax brackets, and your financial situation

Asking the obvious question: how much of your income should be going into investment? It sounds so simple, but it isn’t With tax brackets, deductibles, and allowances in daily life. There isn't a one size fits all solution to this seemingly binary question.

Learn to save money

Whether you want to save for your retirement or make sure that you're financially prepared when an earthquake or disease diagnoses, you should have a general investment policy. The only truly foolproof way of having private financial security is through saving money that generates profit in the long-term time horizon. Investing will become more difficult as time goes on with interest rates decreasing and markets becoming less healthy.

Here's how much you should be saving each year;

The right amount of savings depends on different factors that mainly vary based on your personal situation. For example, filing status can affect the deductions you can take from your taxable income such as not getting a standard deduction, or having a small health care individual responsibility fee.

One of the first steps to figuring out what your taxable income is to subtract all of these deviations from your gross income before figuring out:

• How much money you should be investing

• What type of investments are best for you--equities vs. mutual funds

• Where you should open a brokerage account, etc.

You accumulate future value when you invest

You don't need to be rich to ensure that your future is secure. The earlier you start, the easier it will be. The idea of investing is an alluring one. When you invest a portion of your income little by little over time, you are accumulating future value that can contribute greatly to your retirement, family business, education fund for kids, and more.

The earlier in life you start the quicker those savings will grow thanks to the self-massaging powers of compounding. Do damage control by limiting factors keeping you from investing. Keep a portion of your income for emergencies. Look for creative ways of making money on top of regular day jobs like freelancing. Research on your own, talk to your financial adviser, or just start investing.

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