Maximize Investing on a Budget

Investing money for the future is important, but it can be difficult to find money to set aside when budgets are tight. There are three main strategies to use to maximize the money you have available to invest without overspending: investing small amounts at a time, choosing an appropriate investment, and investing in your ability to invest.

Saving Small Amounts of Money at a Time

Every time you save money, you are making progress towards a future goal. This is true whether you save a large amount of money or a small one.

Some financial institutions offer programs to help you save money, for example, a program that rounds up every transaction to the nearest dollar and deposits the difference into a savings account. With mobile app technology, financial organizations are increasing the access that small investors have. Apps like Acorn, Stash, and Robinhood allow individual investors to run their own portfolios for as little as the price of one share of stock.

If you choose to use an app to help you save small amounts of money, take the time to research which financial institutions run the app and examine any potential conflicts of interest. Also make sure that your information and account is password protected. It is also important to remember that these apps may offer investing advice, but ultimately are not responsible for the returns or losses in your portfolio.

Choosing an Appropriate Investment

When your investment is small, it becomes more important to avoid fees and other expenses.

Look for investments with low expense ratios, like passively-managed mutual funds or Exchange Traded Funds (“ETF”).

Another advantage to mutual funds or ETFs is they offer broad market exposure. This spreads out the risk among multiple companies. There are many different types of funds that have built-in diversification so investors with a smaller amount of money can diversify their holdings.

Some options, like a target-date fund, automatically adjust the investment strategy as time gets closer to the target date. For example, a target-date retirement fund begins with a more aggressive strategy, and becomes more conservative to preserve the money in the account as retirement age gets closer. There is no guarantee that the fund will meet the targeted objectives.

Investing in your Investing Ability

If you do not have a lot of money to invest in your retirement right now, invest instead in solutions that may increase your investing power. What steps could you take right now to increase your income, lower your monthly payments, and make your budget less tight in general?

Maybe instead of investing and saving small amounts of money, you could put that money towards part-time classes to enhance your career skills. Depending on where you live and what your industry is, it is possible moving to a different city or state would help you find a better-paying job or a lower cost of living?

If you have too many monthly payments, consider investing your money into paying off your existing debts.  Once you have reduced your monthly payments, you may have more money at your disposal to invest in your retirement account.

These steps may not look like investing the way we traditionally think about it, but they are still strategic moves you can make that will increase your ability to save money in the future. It is an investment in your own ability to invest.