It is a common conundrum among would-be investors – how to get started when you have little money to invest. When you are living paycheck to paycheck, finding the cash to invest can seem like an insurmountable hurdle, but getting started as an investor is easier than you might think.
One of the smartest things you can do, as an investor and as a consumer, is to adopt a pay yourself first strategy. This simply means that you set aside a portion of every paycheck for saving and investing, essentially treating this part of your financial life like just another bill. It can be as small as 1% of your paycheck, or a tiny dollar amount; the important thing is that you do it. And once that is in place, you can use these strategies to save and invest even more.
Workplace Retirement Plans
From 401(k) plans to 403(b) plans to thrift savings plans, workplace retirement programs are among the best ways to get started with investing. Once you sign up, you can start putting aside as little as 1% of your pay, and chances are you will not even miss the cash you put aside.
As you get more comfortable with investing, you can ramp up the amount you contribute, perhaps even signing up for an auto-escalation program that raises your percentage contribution on a set schedule. You do not need any extra money at all to start putting money in a workplace retirement plan; all you need is a job and a steady paycheck.
Automatic Mutual Fund Contributions
You can start investing with little money even if you do not have access to a workplace retirement plan. If you are ready to get started, many mutual fund companies have very low minimum investment thresholds; as low as $1,000 or even $500 when you set up an automatic monthly contribution.
Having that monthly contribution set up can also instill the discipline you will need to invest for the long term. This is a form of the pay yourself first strategy outlined above, and a great way to put that practice into action.
Dividend Reinvestment Plans
For those interested in individual stocks, dividend reinvestment plans can be powerful tools for new investors, even those with little money to put toward their financial futures. By reinvesting dividends in additional shares of stock, these dividend reinvestment plans, or DRIPs, can allow investors to build up substantial stock portfolios over time.
These dividend reinvestment plans are offered by a number of brokerage firms and mutual fund companies, and there are even investment apps that provide access to these kinds of programs. If you do decide to sign up, be sure to check the fees and read the fine print carefully, some DRIPs are more cost effective than others.
Keep it Simple to Keep Expenses Low
When it comes to investing, it is not just what you invest; it is what you get to keep. If you want to make the most of your money and boost your returns over time, start by keeping your expenses as low as possible.
The easiest way to control expenses and maximize returns is by adopting a simplified approach. Passive investments like index mutual funds and exchange traded funds that mirror popular indexes like the S&P 500 carry fees that are extremely low, and that can mean more money in your pocket as the years and decades progress.
Investing when you have little money to put away can be a challenge, but it is far from an insurmountable obstacle. Even if you can only invest 1% or 2% of your weekly paycheck, those small amounts can add up over time, and the sooner you get started the better off you can be.