Investing jargon made simple: Affordability
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Investing for the first time can be a confusing experience, with the industry dominated by words and terms that are poorly understood outside of the investment bubble.
At True Potential Investor, we believe in making investing clear and accessible for everyone. Over the next few weeks, our new Jargon Buster series is going to be looking at some of the key terms you’ll come across on our website.
Affordability is your ability to afford your investment, without having a negative impact on your lifestyle. This means weighing up your income and expenditure, to see what disposable income you have for investing. If you make £2,000 a month at work, and spend £1,500 on things like rent and groceries, then that would mean you have £500 of disposable income left over. In other words, money that you aren’t going to need to rely on for something else. This money can be used for discretionary spending and investing.
It is an important consideration to also keep aside three months worth of emergency funds in an easily accessible account, as you never know what could be around the corner in life. The old saying of a rainy day fund is true, you need to make sure you have enough money separate from your investment to cover unexpected costs in life. If you don’t currently have three months worth of expenditure, it is a good idea to build this up.
By only investing disposable income your lifestyle won’t be affected by potential falls in value on your investment; you’ll be able to leave the investment in for the long term with time to recover from falls. You can also invest lump sums. The idea is that time allows you to ride out the ups and downs, in the long term your money has the chance to grow towards your goal. That means you are going to need money put aside while your investment is busy. We recommend keeping at least three months worth of funds in an account you can easily access.
Our Stocks & Shares ISA account counts as an easily accessible account as you can withdraw your money at any time. Take our online assessment on tpinvestor.com today to assess your affordability, and once you have identified your disposal income start investing.