Start Investing with Very Little Money Using These 3 Tips
Do you need to have tons of money to start investing? Absolutely not, but the stats tell us that this is still a common misconception. Only 44% of families with income between $35,000 and $53,000 were invested in the stock market, compared to 88% of families with over $100,000 of income according to a 2016 study.
If your tight budget or low income is stopping you from investing to build long term wealth, it’s time to change that. You can start investing with very little money and we’re going to give you some tips to help you put your money to work.
3 Practices to Help You Start Investing with Very Little Money
Anyone can start investing with very little money by putting these 3 tips into practice.
1. Set An Investing Money Goal
To get your investments rolling, you need a target. Set a monthly goal to set aside a specific amount to invest as the first step in making investing a long term financial practice. The amount can be anything, even $5. Over time, you can work on increasing this goal.
2. Make Room In Your Budget to Hit Your Investing Goals
A poll by GoBankingRates indicated that the primary reason people don’t invest is because they can’t find room in their budget to do so. Let’s change that.
Once you set your investing money goal, you need to make room in your budget to ensure you put that money away each month. This means you need to know what your expenses are and what you can cut. For example, if you pay for a gym membership and don’t use it, cut that expense and reallocate the money towards your investments.
3. Automate Your Investments
Now that you have your investment goal and you found that money in your budget, automate it!
One easy way to do this is to direct deposit your paycheck into multiple accounts. You can typically request this by going through your human resources department. By automating your investments before they touch your bank account, you create a frictionless way to meet your investing goals each month.
Choosing the Right Investment Account to Get Started
There are numerous types of accounts out there to start investing and it can be tough to know which one you should choose. To help you with your decision, below are three common investment account options and what they offer.
If you have never invested before, you should start by looking into standard retirement accounts. Two of the most common are an Individual Retirement Account (IRA) and a 401(k) offered by employers. These accounts tend to have tax benefits. Some employers offer a 401(k) match, which you should definitely take advantage of because it’s free money! Keep in mind that these accounts have restrictions on how and when you access the invested funds.
If you want trading capabilities, then you might consider working with a broker. You can make decisions about what securities to buy and when in most cases. However, brokers generally do not help you assess your risk tolerance and it can be overwhelming because of the thousands of securities that are available.
Robo advisors like Finch have become increasingly popular for beginner investors and people who don’t have time to research specific companies. That’s because they help you figure out your risk tolerance and invest your money in a diversified portfolio for you. You may have some flexibility in terms of defining risk tolerance, but there is less flexibility in picking specific stocks, ETFs, or bonds with these types of accounts.
With Any Investment Account, Be Aware of Fees
No matter what kind of account you choose, make sure you understand the fees. Whether it’s a flat monthly fee, AUM (management) fee, or another hidden fee, this can negatively affect returns over time.
You Can Invest Today Even with Very Little Money
You can start investing today with any amount of money. Making room in your budget and automating your investing is an easy way to stick to your goal and build wealth over the long term. Do your due diligence and research your account options to find one that’s best for you.