When it comes to investing, the first step isn’t deciding where to put your money—it’s figuring out how much you actually have to invest. Whether you’re starting with a small amount of savings or have a lump sum ready to go, it’s crucial to break down your finances before diving into the world of investing.

Step 1: Know Your Cash on Hand

Before thinking about stocks, bonds, or other investments, you need to assess how much cash you have on hand. This includes your total savings, liquid assets, and emergency funds. You should also ask yourself: how much money can I realistically afford to invest without putting my short-term financial security at risk?

Step 2: Determine How Much You Need

Investing is about planning for the future, but the amount you’ll need to reach your financial goals depends on factors like your age, income, and financial responsibilities. Are you saving for a home, retirement, or your children’s education? These goals will help guide how much you need to set aside.

Step 3: Allocate Your Investment Funds

Now, let’s talk allocation. Here’s where you decide how much to put into investments and what portion should be kept in cash or low-risk assets. A general rule of thumb is to keep at least 3-6 months’ worth of living expenses in an emergency fund. This fund is crucial, and instead of letting it sit idle in a basic savings account, consider placing it in a money market fund. A money market fund is a safe, low-risk option that typically offers better returns than a standard savings account while still keeping your cash accessible.

Short-term Riskier Plays

If you’re comfortable with taking on more risk in pursuit of higher returns, you might consider setting aside a portion of your portfolio for short-term, riskier investments like individual stocks or options. The key here is not to overcommit—generally, around or below 30% of your total portfolio could be allocated to these high-risk plays, while keeping the rest in safer, more stable investments.

Step 4: Portfolio Planning

A well-structured portfolio should be broken down into different asset classes to balance risk and reward. A basic approach would be to allocate your funds into:

• Cash: This includes your emergency fund and any liquid savings. While cash is the safest asset, it generates little return, so it’s best to keep it in a money market fund or similar low-risk investment.
• Equities (Stocks): Equities offer higher potential returns but also come with higher volatility. Depending on your risk tolerance, you could allocate a good portion of your portfolio to stocks, focusing on a mix of blue-chip companies and more growth-oriented firms.
• Other Investments: You may want to include alternative investments like real estate, bonds, commodities, or even cryptocurrencies, depending on your goals and risk tolerance.