It seems as if it’s getting more difficult for the average American to know how much to invest after covering their costs of living.
However, it’s still possible to invest even if it’s just a few hundred dollars per month.
Imagine a 31-year-old named Ariel, for example, who has an annual salary of $48,000 and allocates $120 to investing into the S&P 500 per month.
Ariel doubts that her contributions will be effective in building long lasting wealth, but she’s noticed that more money is accumulating without her doing anything other than consistently investing $120 per month.
She plans to keep up with this plan for the next 10 years without changing the initial amount.
The 2022 Survey of Consumer Finances conducted by the Federal Reserve showed those younger than 35 years old have $68,650 invested in stocks on average, but the median stock holdings was much lower at $12,000.
The average and median stock holdings balance increases with age:
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35 to 44 years old: $195,400 average; $30,000 median
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45 to 54 years old: $374,810 average; $68,650 median
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55 to 64 years old: $740,110 average; $111,000 median
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65 to 74 years old: $838,470 average; $160,000 median
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75 years old or older: $1,005,160 average; $119,500 median
This tells us that the national average of $68,650 for people under 35 years old is likely skewed higher by a small percentage of people who have more money to invest while they’re younger or are in higher-paying jobs later on in their careers.
Read more: 82% of Americans are missing out on a savings account that pays over 10 times the national average
If Ariel keeps up with her investment plan of $120 per month, or $1,440 a year, until she’s 41 years old, she will have invested $14,400 without accounting for any returns.
If Ariel continues to keep up the habit of consistently investing every month but decides to increase the amount to $200 per month for the next 10 years, then she will have invested $24,000 – which is $10,000 more simply by investing an additional $80 per month.
However, there are alternative methods for Ariel or anyone else looking to build wealth if it’s impossible to increase the initial investment amount or cut back on other living expenses.
