Blog

Is it Possible to Invest on a Tight Budget?


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.

Create a Budget to Understand Cash Flow

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.

Pay Down Your High-Interest Debt

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.

Research Micro-Investing Opportunities

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.

The Takeaway:

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. 

Lifestyle   Investing   Business   Loans   PersonalFinance   Career