- How to Invest with Low Income
- Investing with Low Income: Every Penny Matters
Are you curious about how to invest with low income?
Don’t worry – it’s not just a pipe dream. Play your cards right, and it could be a reality – and a smart move, at that.
A common misconception about investing is that it’s only for high-income earners. In reality, investing money is for everyone – including low-income earners with a bit of extra cash every now and then.
While it’s true that many methods of investing require a large amount of capital in order to invest money upfront, there are lots of options out there for low-income earners as well. From high-yield savings accounts to exchange-traded funds, here are some of the best options for people who want to start investing with mere pennies.
How to Invest with Low Income
Building wealth (or even just saving money) is far easier if you start investing early – and often. Consider these top options to help you start investing your money, even if you don’t make a ton of money.
1. Pay Off Your Debt
The beauty of investing is that anyone can save – it’s just the format of the saving that might change depending on your income and how much extra cash you have available.
For most people, the easiest way to start investing with low income is to pay off some debt. Consider paying off any debt – even the “good” debt like mortgage debt or student loans.
Even if your interest rates are low or the accounts have low fees, increasing the amount of money you put toward these payments to pay them down faster will leave you with more money in your wallet at the end of the month (and then you can invest that in your retirement savings, stocks, mutual funds, or something else later on!).
2. Invest in Education
One of the best ways to get ahead is to invest in yourself – and in your education.
Most entry-level jobs pay less than $600 per week, assuming that you work a 40-hour workweek. While this is a decent wage if you’re just getting started, it’s definitely not going to be enough if you want to have some extra money hanging around (or even a solid emergency fund to rely on).
Investing in your education isn’t a traditional method of investing (like investing in the stock market, per see), but it can help you get ahead. Take a look at your current career and see what you might be able to do to increase your salary.
It doesn’t matter what you do – even if you’re a line cook at a restaurant, you can probably find someone who earns more money than you do. Take a look at what they have, and you don’t – then work to achieve it. Sometimes, increasing your income by investing in yourself might be as simple as taking some free courses or reading some books.
3. Start Small
Investing can be overwhelming, but the good news is that you can start small. If you have just a bit of spare change to invest, then you’ll love the Acorns app.
This app offers all kinds of features for beginner investors, but one of the coolest things it can do for you is to round up your purchases to the nearest dollar. When you do this, the balance will be automatically invested for you – and you won’t even notice the difference.
Acorns takes care of it all after you’ve set up your account and linked a card. It’s stupidly easy!
4. Avoid Fees
Although there are all kinds of options out there when it comes to investing your money (particularly in stocks), one of the most frustrating things you’ll have to contend with is dealing with fees. Many companies charge high stock trading costs, fees for options trades, and account minimum fees.
Look for apps and services that allow you to get around this. An example is Webull. You can trade all kinds of tradeable securities, including stocks, options, ETFs, cryptocurrency, and more. best yet, there are no annual or inactivity fees!
5. Bonuses and Refunds
Another easy way to invest (that requires zero stock market knowledge) is to invest via bonuses and refunds. If you get an employee bonus each year, why are you squandering it on splurges?
Instead, invest the money, and you’ll get a reward later on down the road. The same goes for your tax refund.
You can even invest money that you get from cashback or a credit card loyalty program.
6. Invest in Your Savings Account
Try to save at least 10% of your annual income in cash. If you do this for just one year, even if you only earn $14 per hour, you’ll have nearly $2,800 in savings by the end of the year.
That’s with a traditional savings account – but there are other options. Consider opening a high yield bank account if you want to save even more money and maximize the money you have there. It’s a great way to build an emergency fund without having to worry about investment fees.
Just look for a high-yield account that offers a decent interest rate for your investment along with none of the hassles of traditional financial institutions (like an account transfer fee or balance minimums).
7. Invest in What You Know
Believe it or not, you can have a diversified portfolio of investments without having to open up high-dollar investment accounts. You don’t even have to invest in stocks. You can meet your financial goals even as a low-income earner, by investing in what you know.
Invest money in basketball shoes you can buy and resell, in junk cars you can fix up, or even in old books that you know are valuable.
Whatever it is that you have a passion for, there’s a good chance that someone else does too – and they could be willing to pay good money for it!
8. Try a Matching Retirement Account
Retirement accounts can also offer a solid return on your investment. This is a traditional method of investment for a low-income earner.
Investing in a retirement account that matches your investment is a great choice. If you’re working for a large company, they likely have a 401(k) option with a 50% to 100% match for the first three to six percent of your income that you contribute. That’s a great return on investment – and a good way to lower your after-tax income, too, so you pay less in taxes than you would otherwise.
Two birds with one stone!
9. Real Estate Investing
You don’t have to be wealthy in order to invest in real estate! Lots of low-income earners are able to invest in real estate simply by being smart about where they put their money.
Although it’s not quite as simple as opening up a stock market investment account, real estate investment is a great way to start putting money away, especially if you have some knowledge of how to build wealth with real estate.
There are all kinds of ways you can get into real estate investing, too, including buying and selling flip houses, house-hacking, and real estate investment trusts. Plus, there are tons of real estate classes out there available to help you learn the knowledge you need for success.
10. Roth IRAs
If you don’t have an employer-matched retirement account, another way you can start investing on low income is to open up a Roth IRA. A service like M1 Finance or Fidelity will let you set up an account with very little money.
In fact, Fidelity acts like a traditional brokerage but has zero account minimums and dozens of commission-free exchange-traded funds. It’s a great way to get your feet wet with investing on low income!
11. Automate Your Monthly Investment
Want To invest – but don’t want to deal with the monthly chore of doing so? Consider taking advantage of a robo-advisor.
Robo-advisors were developed to make investing as accessible and simple as possible. These automated financial planning platforms are driven exclusively by algorithms and are meant to collect your financial information, assess your goals and offer advice, and then invest accordingly.
The automated intelligence tracks your investments and helps you pay lower fees – a smart choice, even if you have a low minimum investment that you can contribute. M1 Finance is an example of a robo-advisor to consider. It has low costs and lets you trade fractional shares without trading or asset management fees.
Investing with Low Income: Every Penny Matters
When it comes to your efforts to build wealth, every penny matters. Even beginner investors with very little extra cash can start building an investment portfolio.
The key? Do your research and be willing to diversify. If you have a lower income, you likely have a lower risk tolerance – meaning you don’t necessarily have enough money to scatter it among dozens of risky investments or in accounts with costly management fees.
Instead, you’ll want to take small steps and spread your money out among low-risk options to make sure you get the best (albeit sometimes modest) return on your investment.
Consider the options above, and start saving today. Whether you want to start investing to improve your personal financial standing or to jumpstart your retirement planning, this one thing is true – every single bit helps!