Playing the stock market can seem like a
rich man’s game, but do you really need to be sitting on mountains of cash
before you can invest?
Investing can be one of the best ways to build
wealth and prepare for retirement, so it should be available for everyone, even
if money is tight. Here’s what you can do to make it a reality for you soon.
Your budget is more than a spending plan; it’s
a litmus test for your finances, giving you a good idea of whether you’re ready
to start investing or need more time to get things in order.
Investing requires some cash available that
doesn’t go towards your needs, wants, or emergency savings. If most of your
budget is tied up with these targets, investing today may not be wise.
However, it could be a possibility tomorrow
by cutting expenses.
While non-essential spending on
entertainment and clothing might be easier to stop, most people aren’t spending
enough on these expenses for it to make a splash on the market. You might have
to consider downsizing or getting a higher-paying job to improve your cash
flow.
Your cash flow might be more of a trickle
if most of your paycheck goes towards debt payments, especially if it’s high
interest.
Usually, the stock market delivers a return
of 10%. Thanks to inflation, the Russia-Ukraine crisis, and a possible
recession, most investors
lost money this year.
Most short term personal loans, on the
other hand, can range anywhere from 20 and 200%. Comparing these high interest
rates to today’s measly returns, a line of credit or installment loan with high
interest may cost more than you would earn on the market.
If you have a high interest loan or line of
credit, use your budget to pay them off before you invest.
But first, check to see if your financial
institution allows early or pre-payments. While the line of credit experts at MoneyKey encourage
borrowers to pay as often and as early as they can, other lenders may penalize
you for making payments outside your schedule.
Once you pay off your short term personal
loans, you can use the money that usually goes towards debt to invest.
You may still not have the purchasing power
of Warren
Buffet, even after you clean up your budget and eliminate high interest
loans online. Don’t worry — few people can compare to the Miracle of Omaha, but
many more are still able to play the stocks.
When you’re first starting out, micro-investing
can help you get your foot in the door. While traditional investing avenues
require a large upfront investment to get started, micro-investing platforms
don’t have such limitations. You can invest tiny amounts — in some cases, you
can even invest your spare change.
Micro-investing apps usually connect with
your bank account, automatically rounding up every purchase you make and
investing the difference into an Exchange-Traded Fund (ETF).
With other apps, you have to transfer money manually whenever you have some
cash to spare.
In both cases, your small investments will
slowly grow over time, just like any investment.
You don’t have to be rich to invest, but
you should have some of your financial house in order first. Use your budget to
understand your cash flow, adjust your spending, and eliminate high-interest
online loans. These tips can help you get started with micro-investing.