What Portion of My Income Should Be in the Stock Market?

Good morning!??

How are you doing today?

And what are your plans for the weekend?

For us, our 6-month personal finance marathon which commenced last month will continue today at 7 p.m. For the marathon, we hold weekly back-to-back Zoom sessions on stocks, bonds, cryptocurrencies, real estate, etc., for our paid subscribers.

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Our Friday newsletters are focused on the questions we get from our community. If you have personal finance questions, please feel free to share them. Send a DM to our social media handles or an e-mail at info@themoneyafrica.com 

Q. Hi MoneyAfrica,

Please what does the statement, ‘the interest is apportioned' mean? 

- Bola

A. Dear Bola,

To "apportion" means to break into bits. Take for instance, a cake that has been divided into 12 equal parts has been apportioned or a box of pizza divided into 6 equal parts has been apportioned.

In this case, for the interest to be apportioned means that the interest for a year is divided and then paid to the investor periodically.

Q. Dear MoneyAfrica,

January is over, how can I perform a review of my finances for January to enable me to do better in the remaining months.

-Victor

A. Dear Victor,

You're right. Finally, the long January is over. And for many people, it seemed like two months rolled into one. Meanwhile here are few practical steps to help you with reviewing your monthly finances.

Step 1: Add up your inflow 

For many people, this is the hardest part of a financial review. Hard, not because of difficulty in adding the numbers, but because they are avoiding the reality of their spending habit.

If you work in a structured place and are paid a salary, through a bank account, you can add up all your salary alerts. If you work in the informal sector, you can go through your business account. The proper thing is to pay yourself a salary as an entrepreneur. Also, add the income from your side hustle(s). The earnings aspect is easier to track compared to spending. 

Step 2: Outflow 

Here is where things can get a bit tricky. Some people tend to make many payments daily, often in cash. In that case, you can start by adding up your withdrawals. If most of your spending is done through cards, you can go through your debits. 

To save you the chore of going through every single alert on your phone, you can take 3 months and then use that as an average. 

Step 3: Debts/Loans 

Many of us tend to lend out small sums to family/friends. Some payback and some may ghost. Even if you choose not to recover the sum, note it down. 

The same applies to loans taken. No matter how little, document them. If you are heavily reliant on loans, that is a symptom of an underlying issue. 

Step 4: Savings/Investments 

In addition to reviewing your income and expenditure, also x-ray your investments. What do you do with your investment income? Spend or reinvest? Did you make any investments at all? You can also place these numbers on an excel sheet. That way, you can compare numbers across several months and even years. We hope you find this useful.

Q. Dear MoneyAfrica,

I am really interested in investing in the stock market but I'm confused as to how much I can put in there. -Shyllon

A. Hi Shyllon,

You left out some important information like your reason for investing in the stock market—is it for capital appreciation or dividend payment? What percentage of your investing amount are you devoting to your stocks? Have you gotten the right education on how the stock market works? Have you considered how your age or duration of investments can affect your risk appetite?

However, a simple and general trick to this is understanding the term "discretionary income." Discretionary income is simply any income that you have left after you've covered all your necessary living expenses.

So, the money you have left after your short-term responsibilities is the money that should be set aside for investing. And from your investing amount, you should decide on the percentage you'd like to devote to your stock investments. Your decision would be based on your age, your risk appetite and investment objectives.

However, ensure you have a portion devoted for emergencies should any emergency come up. Any money you need in the short term—say, in the next few months or in a year—should never be in the stock market if you're a long-term investor and not a trader.

Also, no one knows what could happen tomorrow. The stock market is volatile. So, ensure your investing account has time to breathe and go through the economic cycles without creating a panic that will force you to sell off because of fear.

We hope this helps.

This is where we draw our money curtains for the week.

A new year is a great time to start to document your financial journey. If you would like to do so, you can order our Personal Finance Guide here

Have a lovely weekend.

With Love,

MoneyAfrica Team??