We all know what it’s like to not have enough money in our budget each month. You watch, or should at least, what you’re spending and there’s often little wiggle room. That leaves little room for error and generally means you’re not looking to add anything more to your monthly outflows.
What if I told you that, even with a tight budget, you likely can still afford to invest in the stock market? Believe it or not, even in tight financial circumstances you can invest and often quite well. The key is to not give into the excuse of feeling like you don’t have the money to start in the first place.
You Don’t Need Thousands of Dollars to Start Investing
When it comes to investing, more is better, of course. However, if you believe that you need thousands of dollars to start investing, you’re buying into a myth that far too many novice investors believe.
For those looking to invest with a low starting budget, many online brokers feature low barriers to entry. In fact, some only require opening balances of $500 or even less.
If you’re still struggling to put down a few hundred dollars, consider saving up $25 or $50 each month.
Put the money in a savings account and by the time you’ve saved up $250 or $500 you‘ll have quite a few brokerages to choose from. By following even a simple plan like this, you can easily get started investing and have more than enough to begin with a quality index fund.
Take Free Money
According to a recent study by Fidelity, 43 percent of the millennials polled have a 401(k). While not every employer offers a 401(k), many that do offer an employer match, which is essentially free money. Even if you feel like you can’t afford to save any extra money each pay period, any amount that you can save will benefit you greatly.
First and most importantly, it’s free money. Depending on how your employer match is set up, the amount that they contribute can potentially amount to half or equal to the amount you’re putting away yourself. Secondly, since the money is taken out of your check before taxes (and before it’s deposited in your bank account), you’re much more likely not to miss it.
No, the amount of money that you’re saving likely won’t seem like a lot of money in the beginning, but its purpose is to help get you used to setting aside small amounts. From there, assuming you let your money stay in your account and accumulate, it’ll only build in your favor.
It Has to Start Somewhere
Many in the investing world preach the importance of asset allocation, which is directing your investing decisions based on how long you have to invest and your appetite for risk. It is important, but the most important thing is to simply get started. You just have to do that and everything else will work out for itself.
To put it into numbers, ask yourself when you’d like to retire. If you’d like to retire at 65, the Center for Retirement Research states you’ll need to put away three times as much if you wait to start investing until 45 as opposed to starting at 25.
Simply put, time is your best friend when it comes to investing. Yes, having more money to invest is always better, but it’s more important to get started and establish a habit that will serve you well as you begin the journey of building your wealth.
It might feel like you can’t afford to invest or that starting with only several hundred dollars won’t make a difference. Barring something extraordinary, that is largely a myth. Ignore that myth and your future self will be immensely grateful.