No savings at 40? Here’s how to invest for a potential £500 in monthly income

Even though I’m younger than 40, I know that life throws us all curveballs. Who knows what my financial position will be when I hit that milestone? But for investors who have reached 40 with no savings, it’s not the end of the world. Here’s how to invest in stocks to build a healthy monthly income for the future.

Get the money to get started

To start, it is important to address how to flip from saving nothing to investing something. There are two ways to earn money for investing. One of them is to reduce spending, which means that even with the same level of income, more money will be left at the end of the month.

Another option is to take on more work to increase your income level. I appreciate that this is easier said than done, but it is still a diligent way to provide extra cash to put into the future.

No matter how much can be saved to begin with. As long as the habit of saving and investing money every month becomes the norm, the foundation can be built.

Build momentum over time

From a time perspective, £500 in monthly income would be a good goal to enjoy at the retirement age of 65. At age 40, that gives the investor 25 years to reach that goal.

This is important to focus on, because it means investors don’t need to take high risks when buying stocks to try and get rich quick. Patience and a long-term investment approach is wiser!

If someone saves £150 a month, I’ll add 20% a year. So after the first year, the assumption is for monthly savings of £180 and so on. If this reaches £375 a month in year six, it may be time to stop increasing.

The last cog in the machine to see if the goal is realistic factoring in the average dividend yield. At FTSE 100 the current average yield is 3.66%. But remember, the yields of Footsie stocks are variable and there are nine in the index with yields of less than 1%. According to actively taking stocks instead, I’m going to focus on an average return of 6%.

Turn something into something

By combining these, investors can reach their target of earning £500 per month after 16 years. This can not only provide a savings pot worth £100k, but also a passive income stream even before retirement age.

There are risks to be aware of. It may take longer to achieve these goals if investors are unable to increase their savings over time. Another concern may be from holding stocks that cut their dividends at some point in the future. Finally, 6% yield can be obtained now but not with the new cash year. Drag this again to reach the last place.

That said, I believe that a regular savings and investment plan can yield rich rewards for years to come.