Kicking off your investment journey can be intimidating and many people stumble early on, because they think they need lots of money to get started. Well we’re here to tell you that this simply isn’t true. The reality is that in order to master money, you must manage your money. This means developing good habits with what you already have, and learning how to maintain a healthy relationship to your finances. So here are our best practices for gaining the confidence to invest when you don’t have a lot of money.
Set money goals
So you’ve decided you want to invest, but first ask yourself why? If you have little money to invest, it’s key that you set specific, achievable goals for your investments. Having clear goals will help you stay focused and motivated to make smart investment decisions. Develop a plan for reaching your goals. This plan should include a detailed analysis of your current financial situation, as well as a strategy for investing your money in a way that aligns with your goals.
Build a budget
A good way to start investing with little money and build wealth is to develop good budgeting habits. This means starting off your investment journey with saving. Try the cookie jar method – learn how to save money by putting a small portion away every week, month, or year. Be conscious of where and how you spend your money. Walk through your day and tell your money where to go.
Meticulous budgeting and tracking is a great way to do this. Have you considered a budgeting template? By logging all your income and expenses, you can allocate what goes where using our 50/30/20 rule, where 20% of your salary goes to your savings and investments. By building a budget you can actually stick to, you’re well on your way to the investing universe.
Pay off high interest debt
High interest debt and investing is a bad combo. Why? High interest debt - debt with double digits - is expensive, and so it is unlikely that your returns will be higher than the interest you own. Let’s say you have a car loan with an interest rate of 16%, and your investment comes back with a return of 9% in the same year, well the reality is that your returns will be cancelled out because you’ll still be paying a whopper on your car loan! So that’s why it can be a good idea to consider paying off high interest debt before adding investing to your personal finances. And whilst Paying off debt might sound daunting, it won’t be the minute a clear strategy laid out for you. This debt calculator removes all the guesswork for you - all you need to do is type in the figures before we guide you on the right path. Simple!
Rein in your emotions and keep calm
Don’t panic over the stock market. Oftentimes, if there is a decline, people rush to sell their stock, and when the market is up, people get greedy. By understanding that, in most cases, investments don’t grow overnight, you will learn how to think long-term, which will help you achieve an average return despite fluctuations in the market.
Managing your money is important. But managing your emotions is crucial.
Reining in emotions when investing, especially when you have little money to invest, can be challenging, but it is important for long-term success. Emotional decision-making can be a major pitfall when investing, especially when you have little money to invest. Avoid making decisions based on fear or greed, and stick to your plan.
Sounds logical, right? As always, education is key to mastering the art of investing. Adjust your mindset and remember that investing doesn’t have to be complicated. To get an idea of what goes into investing, learn the core principles, and take some risks. It’s okay to be nervous, but that shouldn’t discourage you from learning the basics and get started investing.
The more you know about investing, the better equipped you'll be to make smart decisions. Read books, take classes, and learn from experienced investors to gain a better understanding of the markets and how to invest wisely.
Start small and invest regularly
It's important to start investing as early as possible, even if you can only afford to invest small amounts of money at first. Investing regularly will help you build a diverse portfolio and take advantage of the power of compound interest.
Choose low-cost investments
When you have little money to invest, it's important to minimize the fees and expenses associated with your investments. Look for low-cost index funds or exchange-traded funds (ETFs) that offer broad market exposure at a low cost. It’s also worth noting that most exchange-traded fund (ETF), require no minimum investment, meaning you can invest as little or as much as you want.There’s nothing worse than choosing high-cost investments that will eat away at your returns. So pick wisely!
Buy fractional shares
The good news is you can invest with little money when investing in stocks and shares. Most trading apps allow you to purchase fractional stock (where you buy a small piece of a stock) for as little as £1. There are many trading platforms that will allow you to do this, but not all. So do your research and find the one’s that do.
Should I invest a small amount?
Whilst investing as little as £1 or £10 can be a good way to get started in the world of investing, it’s important to keep in mind that the amount of money you have to invest will have an impact on your potential returns. With such a small amount of money, you may have limited options when it comes to investing, and you may not be able to diversify your portfolio as much as you would like. Additionally, the fees and commissions associated with investing can also eat into your returns, so it is important to carefully consider all of these factors before making any investment decisions.
Adopt dollar-cost averaging
This takes us onto dollar-cost averaging. Dollar-cost averaging is an investment strategy in which an investor invests a fixed amount of money at regular intervals, regardless of the price of the investment. This can be a good strategy for investors who have little money to invest because it allows them to gradually build a portfolio without having to put a large amount of money upfront.
The advantage of dollar cost averaging is that it helps to smooth out the effects of market volatility on an investment portfolio. By investing a fixed amount of money at regular intervals, an investor is able to buy more units of an investment when the price is low and fewer units when the price is high. Over time, this can help to reduce the overall cost of the investment and increase the potential for long-term growth.
Dollar-cost averaging is therefore a good strategy for investors who have little money to invest because it allows them to gradually build a portfolio, reduce the effects of market volatility, and increase the potential for long-term growth.
There are plenty of ways to invest with little money. But to be successful, it’s important that you develop a financial plan, lay out a budget, do your research, and be patient. You probably won’t get rich overnight, but in time your hard work will pay off. Slow and steady wins the race. And remember this - big bucks are not a prerequisite to being a successful investor