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How to Invest on a Small Budget

by Invisor Last updated on August 16, 2017 Tags: Save Well, How-Tos

Photo by on Unsplash

There seems to be a common perception that tells us investing is only for those with large budgets. It tells us that to start investing, you need thousands of dollars parked in savings to have a chance of reaching your financial goals. 

We’re here to tell you that you don’t need either of those things to open an investment account. All you need is a simple plan and the commitment to stick to it.

Investing on a small budget is absolutely possible, and investing any amount of money will bring you closer to achieving your goals. Here are a few tips to help you invest on a small budget, and make the most of your savings.

Determine a realistic investing budget

When you’re working towards a financial goal you may need to make a few sacrifices, like limiting how frequently you eat out, or reducing some expenses (like switching your cable subscription for a less expensive streaming service). Having said that, investing shouldn’t put you in a financially uncomfortable position. Instead of contributing more than you can afford, think about your lifestyle and monthly expenses to help you determine a realistic amount to allocate towards your goals.

While more money in an investment account will accelerate your goal timeline, it won’t do you any good to miss credit card payments. Remember that you can always make a bonus contribution if you have a little extra money at the end of the month.

Remember the tortoise and the hare

We all know the adage about the tortoise and the hare – slow and steady wins the race. It’s important to remember that investing doesn’t happen all at once. There’s no rule that says you need to invest all your money right away, or that you need to start with much at all. In fact, it’s better to start small now with consistent contributions, rather than waiting until you have a large lump sum of money to put into an account.

When it comes to investing, it’s best to start as soon as possible so you get the full benefits of compound interest, and you get into the habit of paying yourself first. Starting early with small amounts can add tremendous value to your nest egg over time. It may not feel like much at first, but it will slowly grow your portfolio and compound over time. When your income and budget grow, increase the amount you save to make sure you stay on track with your goal timeline.

Set up pre-authorized contributions

Pre-authorized contributions – or PACs – are a great tool to help you reach your financial goals. By setting up a PAC on your investment account, you can take advantage of a number of benefits, like dollar-cost-averaging and minimizing trade costs. But the most important part about using a PAC is that it helps make your investing automatic. If you set up PAC to withdraw $50 out of your bank account each time you get paid, you’ll stick to your schedule, and even better, you won’t even notice the money is gone.

Take advantage of employee savings programs

If you’re not taking advantage of your Employee Savings Plan (ESP), you might be saying no to free money. If your employer offers an ESP, consider using it to further your investment goals. An ESP lets you contribute a portion of your pre-tax income into an employer-provided investment account. In some cases, your employer may even match a portion or all of your contribution; so, you will literally be getting free money as a reward for saving towards your goals. Here are some more benefits of an ESP.

Choose a low cost option

Before you open an investment account, do your research to find a low cost option that works with your budget. There are many reasons you should pay attention to costs when investing, but put simply, fees incurred from investing can significantly reduce your nest egg. Look for professional investment solutions that charge 1% or less on investment fees. It can be the difference of tens of thousands of dollars once the time comes to withdraw your funds.

Before you assume investing is not for you, remember that there are options out there for every budget. A solid investing plan can start with as little as $50 if it’s met with a commitment to your goal. If you follow our tips, you’ll be on your way to building your nest egg, and that much closer to reaching your financial goals. 

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