If you live on a shoestring budget, you might turn your back on investing, believing it’s something only the rich can do. But can you trust your instincts?
Maybe not. It’s possible to invest when you’re short on funds, but how you go about investing depends on just how much money you have on hand.
Take a Look at Your Budget
Your budget is a diagnostic check for your finances. It helps you see where your money is really going each month and whether you’re spending it wisely.
Review your non-essential spending first. Expenses like toiletries, takeout, and clothes can easily take up more money than you realize, so reducing them could free up quite a bit of cash for the market. They’re also easier to cut out than changing anything to do with your essentials.
Focus on Paying Down High-Interest Debt
If you’re short on funds, your money can’t multi-task as easily, leaving you asking the question, “should I pay off debt or invest first?”
Your answer may depend upon the type of debt you owe and its interest rate. It doesn’t matter if you got the loan by phone, online, or in-person. If you have a high interest rate on an online line of credit, installment loan, or cash advance, there’s a big chance interest costs you more than you would earn in returns.
The average stock market return is 10%. Compare this to the average credit card interest rate at 18.24% or high-interest payday cash advances with 300% APR.
If you earn less than you would accrue in interest, consider focusing your extra spending power on paying off debt entirely before you invest.
Use Your Employer’s Retirement Plan to Your Advantage
Does your company offer a retirement plan with matching contributions? If you aren’t sure, it’s time to check in with HR.
A company retirement plan automatically skims money off your paycheck to contribute toward your 401(k). This strategy is ideal for anyone who earns a decent salary but who struggles with overspending.
Some employers also match your contributions up to a certain point, which is basically earning free money for your retirement. You’ll be able to double up on your contributions while only using half of your own money.
You might think you need thousands of dollars to make a splash on the stock markets. To an extent, this is true. The more money you have to invest, the bigger your returns. However, there is a way to invest, even if you only have pocket change to play with.
Micro-investing apps and platforms help you divert spare change into ETFs. They’re giving a modern-day spin on saving your coins in a piggy bank, but unlike your porcelain pig, ETFs provide a rate of return.
These apps usually work by pairing with your bank account so that it can round up purchases to the nearest dollar and investing the difference into your portfolio.
They work under the popular financial belief that the small things matter. Although your individual investments may only amount to$0.50 at a time, they can add up if you make a purchase every day. That daily amount turns into a monthly $15.
Although it may feel like you can’t make serious money moves when you’re broke, there’s still hope for you yet. Start by taking an in-depth look at your budget and cash loan situation. Once you figure out your cash flow, you can look into building your portfolio.