Investing on a Smaller Budget

Don't let your small budget keep you from taking advantage of the wealth building power of investing.

At the end of last week, I published a guest post about investing on a smaller budget. Some of the ideas presented were interesting — but considered risky. Additionally, some of them require that you use leverage in your efforts to begin investing on a small budget. I received a couple of emailed requests asking for more “practical” approaches to investing on a smaller budget.

First of all, if you can, invest in a tax advantaged retirement account. This is one of the best ways to maximize your money, and help you save for the future, since you aren't bogged down as much by taxes. If you are interested in investing beyond your retirement account, though, here are some of my ideas for taking your smaller budget, and using it to good account as you begin investing:

  • Brokerage account: You can open an account with an online broker and begin investing with as little as $25 or $50. Most online brokerages have low account minimums, and you can invest a small amount of money each month. Make it automatic, with a direct debit from your checking account, and you will be investing each month without thinking about it. You can buy partial shares of individual stocks, as well as partial shares of index funds and ETFs.
  • DRIPs: There are a number of companies that offer DRIPs, allowing you to make the most of your investment dollars. You can usually start with a relatively small amount of money, and you can usually purchase partial shares. Many companies will let you set up an automatic plan that draws from your account each month to purchase new shares. Plus, when dividends are paid out, your money is automatically reinvested in the stock, boosting your holdings and helping you build your wealth automatically, a little at a time.
  • Treasury bonds: You can also use a small amount to start investing in Treasuries. You can open an account at Treasury Direct and purchase what many consider the safest investment around. Your returns will be lower, though, but you are likely to have a bit of a safety net.

These methods are less glamorous than investing in commodities or currencies, but they are considered less risky, and they don't require a huge outlay of capital.

Increasing Your Investment

Of course, you shouldn't keep your investment small over time. While it is important to get started with investing, you should also increase the amount you invest as your income increases. As you earn more money, increase what you are contributing. Don't think that you are going to earn enough money to retire on if you stick with your original plan of investing $50 a month. That's just not going to cut it. As your circumstances improve, you must take your investing up a notch. Just make sure to consider your asset allocation and rebalance occasionally to limit your risk, and improve your portfolio performance.

Image source: Agamitsudo via Wikimedia Commons

5 thoughts on “Investing on a Smaller Budget”

  1. Getting started is really important. It is so much easier to start saving $1000 per month when one is already used to saving $50 per month. The change from saving $1000 per month from $0 per month is much more difficult.

    1. Miranda Marquit

      So true! Developing the habit is what’s important at first. Once you have that good habit established, you can look for ways to increase what you save/invest.

  2. Ken Faulkenberry

    Getting started is one the big hurdles for many people. Starting with small amounts is a great way to learn how to invest. Make your mistakes while your assets are low. You will make mistakes, but don’t let that get you down. Keep adding and growing your portfolio little by little.

    1. Miranda Marquit

      So many people think that they need a large chunk of capital to start investing, and it’s not true; as you mention, there are plenty of ways to get started with a very small amount. The important thing is to start.

  3. Another suggestion: Join an investment club. Members pool their money together, and vote on which stocks to purchase. They share in the work and the research. It is an excellent way for beginning investors to get their feet wet, and earn while learning. You can contribute as little as $15 per month in some clubs, I think that $25 is more typical.

    Google your city’s name, and investment club to search for clubs. Or, go to Better Investing.org for a referral.
    If you do join a club, check that it has clear partnership agreement and bylaws, transparency in the finances (e.g. everyone in club has password to view bank account online), and is bonded (insured against embezzlement by officers)

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