How to Invest If You Have Small Money

You do not have to become a millionaire to start investing. As a matter of fact, investing is how you become a millionaire. 

It’s high time you discard the myth that says you need a lot of money to start investing in stocks, mutual funds, and Exchange-Traded Funds. You will never get rich by putting your money under a mattress or in a bank account. If you are going to build wealth, then you will need to invest your money over time.

Do you know that with as little as $50 per month, you can start investing in the stock market via mutual funds? You probably didn’t know that because you have always been of the opinion that investment is for the rich. Well, not anymore. 

In this blog post, we’ll be sharing with you some tips on how to invest if you have small money.

1. Create a budget

The most important “rule” to investing is to learn how to create a budget for your income/finance. Prepare a budget for everything you can, including your utility bills, your rent or mortgage, and most importantly, the money you invest. 

Carefully set aside the amount of money you want to invest each month, not just whatever money you have left over at the end of the month. Because if you don’t set it aside, there often isn’t any money left at the end of the month. 

Note: It is very important you set realistic goals when planning your budget. For instance, start with small amounts of money, and then increase as you get more comfortable with the process. 

It may be a matter of deciding not to go to McDonald’s or passing on the movies, and putting that money into the cookie jar instead. 

2. Cut out your lavish spending habit

Consider tracking your daily spending, especially when you purchase those sodas and other extra stuff that isn’t necessary, and see what you can cut out. If your investment account doesn’t have a minimum amount, you could redirect the extra dollars into the account. 

It might seem very little, but redirecting the extra $10 or so will add up over time and result in something huge. For instance, Ronald Read was a Vermont man who worked as a mechanic and then a part-time janitor when he got bored being retired. When he died in 2014, he left $6 million to a library and hospital. Of course, he started from the little $10 you do not count important right now.

3. Avoid expensive lifestyle

Just because you got a raise in your paycheck or you got yourself a better-paying job doesn’t mean you should go for expensive things (like cars, clothes, houses, and the like), even if you can conveniently afford them.

Instead, take that extra money and invest it while maintaining your old standard of living. Of course, you can reward yourself for a job well done, just don’t go crazy doing that. 

Now that you know why and how to invest, what can you invest in? 

From a savings retirement with a 401(k) or similar employer-sponsored plan in a traditional or Roth IRA, there are a good number of investment plans you can participate in.

1. Stocks

A stock is a share of ownership in a company. Stock prices move based on investors’ evaluation of the company’s performance, including leadership changes, new product releases, or how it’s doing financially.

Stocks are also known as equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. 

A common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights but usually guarantee a dividend payment.

2. Bonds

A bond is essentially a loan to a company or government entity that agrees to pay you back with interest in a certain number of years. 

Bonds include municipal bonds (investing in your local schools, hospitals, and municipalities), commercial bonds (lending money to companies to help you earn higher yields), savings bonds, and treasury bonds.

Unlike stocks, bonds generally are less risky because you know exactly when you’ll be paid back and how much you’ll earn.

3. Mutual funds

A mutual fund is a mix of investments managed by an individual company. When you invest, you don’t choose specific stocks or other securities; the mutual fund does it for you. 

The inherent diversification of mutual funds makes them generally less risky than individual stocks.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund.

4. Employer-sponsored retirement plans such as a 401k plan

This is probably the easiest way to invest small amounts of money, even if you don’t have any money at all. That’s because it’s generally set up as a payroll deduction so that you can allocate a percentage of your paycheck to go to the retirement plan.

Depending on the rules established by the employer plan, this investment plan can allow you the option of designating just about any amount of your paycheck that you choose—as low as 1% to 20% or more. 

5. Open an IRA or Roth IRA

If you don’t have an employer-sponsored retirement plan, setting up your own retirement plan is totally possible as long as you earn an income. Either you choose an IRA or Roth IRA, any returns on investment that you earn are tax-deferred until you begin withdrawing the funds in retirement.

You can contribute up to $5,500 per year. Which means you can build up a substantial portfolio in just a few years.

Investing may seem scary, but it really isn’t. Be sure to do your research properly before considering an option. Starting off with a small initial investment and working towards a long-term goal is the best way to go.

 

Thank you.