Invest, invest, and invest. You’ve probably heard this advice a million times now. You could be really tempted to start investing but you have a big problem – you have very little money!
Is that really a problem? Actually, it isn’t.
There’s a rampant myth that you need to be rich to start investing. The truth is you don’t need to have a lot of cash to start investing. You can start with as little as $5, $20, $50 or $100 and grow your money from there. The key to building wealth is to be consistent and to automate your deposits.
Trying to live a little below what you can afford, avoiding instant gratification, and establishing healthy money habits is key.
Here are some smart ways to start investing with little money.
1. Start by learning how to save
Even if you’re thinking, ‘I don’t have a lot of money right now,’ you need to save for future you.
You’re right. Saving and investing are two different things. But they are closely connected. Basically, you first have to save in order to have enough money to invest. And just like you don’t need a lot of cash to start saving, you don’t need to put so much pressure on yourself trying to save.
You’ve probably have heard about some people being able to put 20 or 40 percent of their paycheck in their savings account. It’s nice to have the same goal but if it’s your first time saving, you don’t have to. Rather, start with the traditional cookie jar approach. Yes! Put those extra coins into a jar or a piggy bank if you insist. Or perhaps in an envelope or shoebox. That $10 you save weekly could grow to $520 in one year.
2. Next, invest that money
Even better than the cookie jar approach, you could put that $5 or $10 a week or month into an investment account with a digital investment platform like Ellevest, where your money could grow thanks to the power of compounding.
Compound interest allows any interest earned to then accrue interest on itself, so over time a small amount of money invested earlier will earn more than a large amount of money invested later. That’s why it’s so much easier to end up a millionaire if you start putting away cash in your 20s. Here’s an example of how compounding works:
Say you invest $100 today and earn 10 percent on it in the coming year; that’s $10, which means you then have $110. If you earn that same 10 percent return the next year, you earn it on the $110. So you earn $11, not $10. Do it again, and the same 10 percent return earns you $12. And so on and so on. And over time, it adds up to a lot.
An important financial lesson that many fail to understand: It’s never too early to begin investing.
Even if you can only contribute $50 or $100, start there. Don’t know how much to start with? The 50/30/20 budget can help you figure it out.
3. Decide where to put your money
If you’re saving for the future, you’re on the right track. But where you put that money matters just as much as how much you’re able to put away each month. In other words, where you allocate your funds has a significant impact on your ability to save and invest.
There are many other forms of investment other than mutual funds, and it’s up to you to decide which ones are most appealing to you and would help you reach your financial goals faster. Be aware of where your money goes to identify patterns that you need to change or continue. Learn to be smarter with how you utilize and manage debts as well. For example, instead of using online personal loans to buy a new gadget, you could use it to invest in a small business, like home-based, DIY accessory or a small online clothing shop.
4. Pick an advisor
You will greatly benefit from finding someone who has the expertise to help you manage and grow your investments, such as Ellevest.
In the past, finance and investing were seen as “things men do.”Today, the market is answering the call for portfolio management platforms specifically created for women. A new entrant into this female-focused automated investing—or robo-advisory—arena is Ellevest, co-founded by Sallie Krawcheck, a former Wall Street CEO and finance industry veteran whom Fortune Magazine labeled as “The Last Honest Analyst.”
Having forged partnerships with analysts, entrepreneurs, and engineers, Ellevest’s goal is to empower women financially.
Among the advantages of Ellevest is having a customized investment portfolio geared towards your investment goals and cash needs. With the experts at Ellevest guiding you through your investment journey, you increase your likelihood of meeting your goals.
5. So, how does Ellevest differ from its competitors?
Most robo-advisors have a limited number of available investment portfolios. If your preferences don’t fit in with their pre-created portfolios, you’re out of luck. Ellevest solves that problem by presenting hundreds of distinctive portfolios, customized for the individual investor.
Most automated investment platforms start out with a risk tolerance questionnaire to determine your ideal mix between stock and bond-type investments. The Ellevest approach examines your goals, their timeline and then designs the investment portfolio to meet those financial goals and “aspirations.” Additionally, users can select single or multiple goals and change them as needed. Included in the goal-based focus is a percentage likelihood of meeting that goal—70% is the minimum.
Another differentiating feature of Ellevest is the breadth of its fund choices. Today Ellevest offers 21 funds. Ellevest scrutinized the ETF universe to come up with funds that have low fees, high liquidity, tax efficiency, and ones that closely follow their stated benchmark. See here for how Ellevest works, and what this robo-advisor offers to investors. (For further reading, see: Robo Investing for Beginners).
Invest in mutual funds.
You’ve heard of ‘mutual funds’ a million times. But what are they really and what makes mutual funds a good form of investment?
Think of them as baskets of investments in the form of securities such as stocks and bonds. Mutual funds are operated by professional money managers. Once you sign up for a mutual fund, you become a shareholder who participates proportionally in the gains or losses of the fund. On average, mutual funds require an investment between $500 and $5,000. However, there is an investment platform that allows you to invest as little as $5. So, having little money should not be an excuse to delay investing.
As you’ve realized by now, there are many ways to start investing with little money. Now, all you’ve got to do is to make the decision. Do it for yourself. Do it for your family. Do it for your future.
Maximize your payroll deductions.
An easy way to save is to maximize your payroll deductions. Say, for example, you earn $1,000 per week at work. You could have a specific amount directly deposited into a separate savings account before you even receive your paycheck. The fact that the whole process is automatic makes it convenient and assures you that you have set aside money for your investment goals.
Invest in mutual funds.
You’ve heard of ‘mutual funds’ a million times. But what are they really and what makes mutual funds a good form of investment? Think of them as baskets of investments in the form of securities such as stocks and bonds. Mutual funds are operated by professional money managers. Once you sign up for a mutual fund, you become a shareholder who participates proportionally in the gains or losses of the fund. On average, mutual funds require an investment between $500 and $5,000. However, there are mutual fund companies that allow you to invest as little as $50 as long as you sign up for automatic monthly investments.
Having less money should not be an excuse to delay investing. As you’ve realized by now, there are many ways to start investing with little money. Now, all you’ve got to do is to make the decision. Do it for yourself. Do it for your family. Do it for your future.
It can be fun spending money. It can be even more fun watching your savings grow. You’ll thank us later.
For when you don’t have a retirement fund…
Don’t sound the alarm – yet. Ellevest can get you set up in less than 10 minutes so you can reach all of your money goals. Sans judgment, finance jargon, and trust issues. Crisis, averted. Get into it here.*
Here are a few more low-stress ways to start investing.
Lidia Staron has been working as a writer, editor and literary coach for 5 years. She contributes articles about the role of finance in the strategic planning and decision-making process. You can find really professional insights into her writings.
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