How to Invest on a Small Budget – A Comprehensive Guide

Would you love to invest but are not sure whether you have enough money? If so, this article is tailored for you. We will teach you the various ways of investing using a small budget. Read on to learn more.

Create a Budget

If even you are a low-income earner, it is important to save every month. This can be done by creating a budget, which will help you determine your monthly expenses and how much you can afford to save to invest later. Note that the goal is not to save a lot of money immediately but to build the habit of saving that can help accumulate money for future investments. Financial experts say saving $5 each month is better than saving nothing.

Open High-Yield Savings Account

After formulating a budget and determining how much is left as savings, opening a savings account that attracts a high yield is advisable. Such an account ensures your deposit earns a high interest rate, thus allowing you to grow your money passively.

It is worth mentioning that most conventional banks require customers to make a significant deposit to earn high yields on their savings. Therefore, we recommend opening a savings account with online banks or credit unions, which usually allow customers to deposit a few dollars to receive high yields.

Automate Savings

Another way to ensure you accumulate enough money to invest is to automate your savings. You can do so by instructing your bank to deposit a specific amount in your savings account every time your checking account is credited with your monthly salary.

Also, if your bank has a savings program, we recommend joining. This program allows you to save cashback rewards whenever you use your debit card to pay for products or services. You will receive a statement at the end of the year informing you how much you have saved.

Set Aside Refunds and Bonuses

Did you receive tax refunds or employee bonuses? Well, do not use them. Instead, deposit the extra money into your savings account to grow your investment fund. Since you did not expect the additional funds, it is likely that you won’t feel the pinch when you set them aside.

If your tax refund or employee bonus is massive, it is wise to open a brokerage account to begin your investment journey. As a new investor, identifying the right individual stocks to invest in can be challenging. Therefore, we recommend looking into mutual funds or exchange-traded funds. But what are they? Here is a brief explanation.

Mutual Funds

Mutual funds are companies that invest in various financial instruments, from stocks to bonds. By investing in a mutual fund, you do not need to conduct market analysis and pick an asset to invest in. Instead, the fund does all the hard work for you. So, how much do you need to invest in a mutual fund? You can start with as little as $300.

Exchange-Traded Funds (ETFs)

ETFs operate like mutual funds but have one major difference: their prices are determined by traders, while prices of mutual funds are set before the next trading day. ETFs track the performance of certain stocks. For example, instead of buying 500 stocks under the S&P 500 category, you can invest in the Standard & Poor’s depository receipt ETF. To invest in an ETF, you only have to purchase its shares tradable on stock exchanges.

Other Forms of Investing for Low-Income Earners

Micro-Investing

There are several micro-investing platforms that enable people to purchase fractional shares of mutual funds. The minimum investment amount is relatively low ($5). Acorns is a good example of a micro-investing platform. It allows users to invest in various assets by connecting their bank accounts to the app.

Robo-Advisors

A robo-advisor is a financial planning platform that simplifies investing. It collects your financial details and then advises you on the assets to invest in.