How To Start Investing With Little Money
Want to start investing but don’t have much to contribute? You’re not alone. Given the cost of living in most areas, the amount of debt the average family has, and other important necessary expenses, many Americans can’t afford a $1,000 expense let alone spare extra money to invest.
On the bright side, you don’t need a ton of money to start investing. Just like saving, investing is more about developing a habit and being consistent over time. If you start by setting a little money aside and make it a habit, it will be easier to invest more when your budget allows.
Plus, getting started with investing early will give you enough time to build a solid nest egg. Check out these 5 options to help you start investing with little money.
CONTRIBUTE SOMETHING TO YOUR 401(K)
If your employer offers a 401(k) consider yourself lucky. This is an easy way to invest what you can and get it deducted directly from your paycheck. 401(k) contributions are tax-deductible and you won’t even notice the money missing from your paycheck since it’s takeout out pre-tax.
Some employers even offer to match your 401(k) contributions which is an added bonus. If you can’t contribute up to the maximum amount, just start small by contributing around 2% to 3% of your income. This will add up over time and it’s great that it’s automatic.
CHOOSE A ROBO-ADVISOR
You don’t have to spend big bucks on a financial advisor to start investing in stocks and bonds. Robo-advisors are websites that can help you invest in the right vehicles and manage your portfolio. Sites like Betterment use advanced technology to help select safe investment options that match your desired level of risk.
I’ve been using Betterment to contribute to my Roth IRA for a few years now and it’s super easy to navigate. When I first signed up, I was asked a few questions about my investment goals along with my desired risk tolerance.
Since I started investing in my 20s, I felt I could be riskier so my portfolio has a higher percentage of stocks vs. bonds. I like how robo-advisors help you figure out what works best for you so you can start investing consistently. The best part was that I started out only contributing $1o0 per month.
REWORK YOUR BUDGET
If you aren’t budgeting with investing in mind, you probably won’t feel like you can afford to invest. We spend and save according to what we plan for. It’s that simple. If you want to contribute $150 to invest each month, take a look at your budget.
If this seems like a stretch, review your spending categories and see where you may be able to cut back. I know for me, I was able to free up more money by keeping our housing costs pretty low and limiting dining out.
Another thing that helped was focusing on paying off a lot of consumer debt. Think about it. The average car loan ranges between $300 to $500 per month. Imagine if you had that money to invest instead.
SPARE CHANGE INVESTING APPS
I love spare change investing apps because they show you how small amounts can add up over time. Last year, I signed up for Acorns which invests small amounts at a time that are rounded up by each purchase you make.
You connect Acorns to your checking account and they automatically invest the difference of a purchase to the nearest dollar. For example, if I go to Walmart and spend $22.50, Acorns will take $0.50 out of my account and invest it. Acorns also allows you to make one-time lump sum investments as well as small weekly contributions (think $5 per week).
As you stash away money likes squirrels do with acorns, you’ll see your balance increase over time with very little effort on your end.
MAKE MORE MONEY
Of course, the end goal here would be to consider making more money so you can invest more over time. You don’t want saving to cause you to stretch yourself too thin if you’re already living paycheck to paycheck.
The key is to find ways to increase your income once you’ve cut expenses and developed a healthy savings habit of small contributions.
To max out an IRA this year, you can contribute up to $6,000 if you’re under 50. That breaks down to $500 per month. There are several ways to earn an extra $500 per month whether you want to babysit and walk dogs, sell stuff online, offer freelance services, or deliver food with DoorDash.
You can also consider investing in your education and skills so you can land high-paying career opportunities. What if you were able to land a new job that paid you $10,000 more annually than you were making? Better yet, what if you committed to keeping the same lifestyle and investing the additional $10,000 salary increase instead?
SUMMARY
Don’t overwhelm yourself by thinking you need a massive amount of money to be able to invest. You can definitely start investing with little money and focus on building a solid habit first.
Saving something is always better than saving nothing. Then, you can work on increasing your income and your investment contributions over time.
Note: This article originally appeared at Everything Finance. The author is Chonce.
Category: Personal Finance
