How to Start Investing on a Tight Budget

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Last year more than 54 percent of Americans invested in the stock market. But when you are living on a tight budget, becoming part of that 54 percent can feel out of reach.

It doesn’t have to. And you don’t have to wait until you get a promotion or a raise to start investing. You just need to commit to learning how to start investing the smart way.

Here is what you need to do to start investing even if you are pinching your pennies.

Add Up Your Spare Change

The key to becoming a successful investor is to start by saving up as much as you can. Remember, every investment costs money. And the more money you have, the more you can invest.

You don’t have to go crazy. Start saving up your spare change or designate a few dollars out of every paycheck to use for your investments. Over the course of the year, you will have saved enough to get started.

You can even speak with your bank to see if there is a way to round up your purchases on your debit card to a whole-dollar amount. The extra few cents will get sent to your savings account automatically. This makes it easy to save up without having to keep track of loose coins.

Stick with a Savings Account

Sometimes, it is best to keep things simple. And when you are on a tight budget, a savings account is a great investment option.

Now, that doesn’t mean you should just settle for the free savings account offered by your bank.

Start looking around for different options. Many companies offer interest-earning savings accounts that help you build your wealth without any risk.

The more money you add to the savings account, the more you earn in interest. Over time, that interest can really add up. And you will be able to use those funds for bigger and better investments if you choose.

Pay Off Your Credit Cards

Investing doesn’t always mean investing in a company or buying stocks. It can mean investing in yourself and your future. And nothing takes more of a financial toll than credit card debt.

When you carry a balance month after month, the amount you owe increases by the card’s interest rate. And if it goes on too long, the interest charges can become high enough that paying down your cards will feel impossible.

Invest in yourself by paying down your credit cards and stop carrying a balance each month. Over the course of the year, you’ll save hundreds if not thousands of dollars in interest fees. And that’s money you can use towards other more lucrative investments!

Invest in What Interests You

Before you can start making investments, you need to figure out what you’re interested in. 

Remember, there are stocks for almost every type of business you can imagine.

If you’re passionate about a particular industry, it can be helpful to start investing in companies you believe in. It gives you more motivation to keep saving so you can invest more towards those companies.

But before you put any money on the table, you’ll want to do research on those companies and their recent performance. View stock options online and read up on the brands before you buy a single share.

If you’re confident in the companies, consider buying a share or two. Remember, you don’t necessarily have to purchase hundreds of shares at once — one or two shares is a great place to start. And as you save up more money, you can purchase more shares.

Invest in Your Retirement Plan

When you are first starting out, getting access to large investment portfolios is hard. They often have high minimum investment amounts. And if you are already pinching pennies, reaching those minimums will is a real challenge.

But you might already have an easy way to access those bigger investment options, the 401(k) offered by your employer.

Start making contributions to that plan with each paycheck. Don’t worry — you can start with something small. Even $20 a month will get you started. And you can always increase the amount you contribute as you progress in your career.

Remember, the more you contribute to your retirement fund, the bigger your returns can be. But you won’t be able to access that money before you reach retirement-age without getting stuck with a tax penalty.

Look for Robo Advisors with Low to No Minimums

Believe it or not, it is possible to start investing with as little as $5. You won’t get rich quick, but you can start growing your portfolio. And the best way to do it is through a robo-advisor.

Robo-advisors are computer programs that assess your available investable income, your risk tolerance, and your goals and make suggestions based on that information.

These investments are typically low-cost funds that won’t net you massive returns. But they can help you get started. As you can contribute more to your investments, you will be able to enter new higher-cost funds that may offer larger returns.

For new investors, robo-advisors are a great way to learn the market. You will see how your investments perform and have access to a simple analysis of your investments that can teach you what to expect as you move up.

Final Thoughts on How to Start Investing on a Budget

There is no single answer to how to start investing on a tight budget. But these options are a great place to start with your investments.

Just remember that almost every investment comes with a certain degree of risk. If you feel that you are not comfortable with the potential losses, find another option.

If you are careful and you listen to your gut, you will become an investment pro in no time.

Ready for more helpful tips on investing or growing your wealth? Check out our recent blog posts and articles on investing, cryptocurrency, and finance.

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