Even after the financial crash of 2008, there is still a great deal of interest in investing. After all, it’s one of the most effective ways to build wealth over time. However, many would-be investors claim that they don’t have enough disposable income to invest.
The reality, however, is that it’s possible to begin investing with as little as $25. Most of us can find $25 in our monthly budgets. Online brokerages make it easy to begin investing with a small amount of money, and it’s possible to purchase partial shares. Chances are, though, that you recognize the importance of increasing the amount you invest beyond $25 (or $50 or $100) a month.
Happily, money is something you can usually find more of.
Find Money in Your Budget
If you want more money to invest, you need to take action. Decide that investing is a priority, and take steps to create more room in your budget for investing. There are two main strategies to apply when looking for more money:
- Trim the fat from your budget: Is your budget bloated with unnecessary expenses? Look at your spending, and find ways to cut back. Prioritize your spending so that you cover the most important items, and cut the least important from the list. If you really want to invest, make it a priority, and cut less important expenditures from your budget.
- Earn more money: Find ways to earn a little extra money each month, whether it’s from a side hustle or a part-time job. If you want more money, sometimes you need to go out there and earn it.
You can find more money for investing when you actively look for it. Combine both strategies for even more dramatic results. However, the fact that you don’t need a lot of money to get started with most discount brokerages makes it a little easier to identify money in your budget that could be invested.
Start small, but grow your investment over time. As your circumstances improve, increase your monthly contribution. It’s much easier to invest $100 a month later if you are already investing $50. Create a habit of regular investment, and boosting the amount will come easier to you as your net worth grows and your personal cash flow improves.
Investment Ideas for the Small-Budgeted Beginner
If you have a small budget, especially to start, there are some investments that are a little easier to understand – and that many beginners feel a little safer devoting their hard-earned money to:
- Index funds: Many investors like index funds because they offer a measure of diversity, and they come with low fees, meaning that you keep more of your returns.
- ETFs: Another investment option that comes with low fees is the ETF. Exchange-traded funds provide a measure of diversity as well, and they are easy to buy and sell, since they trade like stocks.
- DRIPs: If you are trying to use a small amount of money to start an income portfolio, companies that offer dividend reinvestment plans can be good choices (many investment experts suggest dividend aristocrats). When dividends are paid out, the cash is automatically reinvested. You essentially receive free shares, building your assets over time. Many companies and brokers waive transaction fees for reinvested dividends.
- Treasuries: For those interested in “safer” investments, Treasury Direct (http://www.treasurydirect.gov/) offers you the opportunity to invest in Treasury securities. However, the minimum purchase for bills, notes, bonds, and TIPS is $100.
There is always the risk of loss, no matter what investment you choose. However, if you don’t invest, you run the risk of losing out to inflation in the long run – and you don’t have the ability to build your wealth at the same rate. It doesn’t take much money to begin investing. Chances are that you can find the capital you need to get started by making a few simple changes to your budget each month.
Miranda is a freelance contributor to several investing and personal finance web sites, as well as writing for her own blog, Planting Money Seeds.