Budgeting isn't just about knowing where your money is going and coming from. No matter what your skill level is, budgeting can be a very helpful way to build your portfolio, and it can even lay the groundwork for a long and fruitful investing career. 

Why budget? 

Yes, budgeting means being in charge of your money. But there’s more to it than that. It can also be a way to help you reach your financial goals. Think of budgeting like a compass that can help point out all the investment possibilities before you. With the right information, it can present a clear picture of your income, your expenses, your savings and even your investment potential. 

Many investors like setting clear investment goals and sticking to a budget. While you can decide how strict or relaxed you want to be, budgeting might be a good way to start putting your money into smart investments while still being a disciplined investor. 

Pre-budgeting considerations

Before explaining how to create a personalised budget, there are a few things to consider. Emergency funds can be a financial safety net that help you deal with unexpected situations, such as sudden medical expenses or if you lose your job. Some investments, like shares, can generally be sold quite quickly. If you need access to emergency funds quickly, you should consider how you do this before committing all of your money into a particular investment opportunity. 

Before investing in something new, it might be wise to take care of any outstanding debts first. It can also be helpful to regularly review your lifestyle expenses so you can plug any gaps or see if there’s anywhere you could be saving more. 

Creating a budget 

Now, it’s time to start building a budget. Everyone is different, but it usually pays to take a structured approach, so here are five steps to guide you along the way: 

Step 1: Assess your monthly income and expenses 

This step should give you a good overview of where your money is coming from and where it’s going. Think about writing down all your sources of income, including your salary from your job, freelance gigs or any other earnings (e.g. dividends from your investments). At the same time, you can create a list of expenses like rent or mortgage payments, gas and electricity bills, weekly groceries, petrol and other spending. 

Step 2: Remember your investment goals 

Reflect on both your short- and long-term objectives. Short-term goals could be saving for a holiday or beefing up your emergency fund, while long-term goals might focus on retirement planning or buying property. Reconnecting with what your goals are can help you decide how much you could decide to invest.  

Step 3: Set aside funds for investments 

Within your budget, reserving a specific amount of your income just for investments might be worthwhile. It's easier to set aside this amount as soon as you get your regular pay. Some investors choose to use a fixed percentage, while others might have a specific dollar amount that goes up or down each month, depending on what’s happening in their lives. It’s completely up to you! 

Step 4: Create your own system 

You might like to divide your budget into a few different categories like ‘essentials’, ‘savings’, ‘investments’ and ‘nice-to-haves’. Then, give each category a percentage or specific amount of money – with essentials and savings being taken care of first. 

For budgeting, think about how you are doing financially, your risk tolerance, and the amount of savings you could set aside every month. Everyone will be different but try to be consistent with your habits if your system has regular funds for investing. 

Step 5: Track and adjust 

Go back and review your budget from time to time – this could be on a monthly or even weekly basis. Soon, you’ll know what to look for and what needs tweaking to align with your financial goals. 

How much money do I need to start investing? 

Simply put, there is no one-size-fits-all number to get your started in investing. However, if you’re looking to increase your wealth for retirement and you only invest $100, the chances are you won’t realise that goal. How much you need to invest comes right back to your goals – what are they? 

If you’re starting out, you don’t need to invest huge amounts straight away. While larger budgets can open up potentially higher returns, being consistent and understanding what’s happening in the market could set you up for success. Starting small and growing over time if you’re new to the investing game can help your learn and build your confidence.  

Key takeaways 

• Budgeting is something every investor should consider at some stage. 

• You may wish to consider emergency funds and debts before setting aside money for investments. 

• Creating a personalised budget can give you more confidence to ride out the highs and lows of the market. 

• Being a consistent investor might be an easier way to build your portfolio than investing a huge lump sum at the start.