Yahoo Finance 4 Ways To Grow Your Wealth When Money Is Tight
Even if you don’t make a lot of money, you can still start building your wealth today. Investing might sound like something only rich people do, but that’s not true.
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In fact, even if you don’t have a lot of money, it can be important to try to put a little money away to invest now. Because of the power of compound interest, small recurring investments can beat a large investment with enough time. Here’s everything you should know about ways to invest on a budget.
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Budgeting Investments
You don’t need thousands of dollars to start investing. If you can set aside $100 a month to put into a retirement account, that can be enough to make a serious impact over time.
If you have difficulty setting aside that money, there are tools that can help you. Look into apps and banks that round up your purchases to the nearest dollar and save or invest the change. For example, if you buy a snack for $1.75, an app can round it up to $2.00 and put the extra $0.25 into a savings or investment account. Over time, these little bits can add up.
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Fractional Shares
In the past, investing in the stock market on a budget was a bit more difficult than it is today. Certain stocks could cost hundreds or even thousands of dollars, and if you didn’t have enough to buy a single share, you were out of luck.
Companies whose stocks grew in value significantly would sometimes split existing shares into smaller “pieces” so that they were easier to purchase. For example, one $500 share would become five $100 shares after a 5-to-1 stock split. However, if you didn’t have $100 to put into the stock, you still wouldn’t be able to invest in the company.
Nowadays, online brokers allow you to purchase fractional shares. You don’t need to keep a paper certificate for a full share anymore. Your broker can just keep track of how much money you invested into a stock. This means that instead of buying a full share of a hypothetical company for $100, you could just invest $20 to own one-fifth of a share. If the value of the company goes up in value, your fractional share will do the same.
Index Funds
If you’re looking to grow your money reliably, a low-cost index fund can be one of the best options. Index funds invest in a wide range of stocks or bonds, which means your risk is spread out. Because they follow a set index and are not managed by a person day-to-day like traditional hedge funds, their fees are lower.
You can start with a small amount of money and add to it whenever you can.
Investing In Yourself
It’s good to start investing as early as possible. However, sometimes the best investment you can make is in yourself. While an investment in the market can get you an average return of around 10% a year, upskilling and switching to a better-paying career or starting a small business might increase your annual income by much more.
Spending money on education or learning new skills can lead to better job opportunities and higher earnings. Here are a few ways to invest in your education on a budget.
Online courses: There are many free or low-cost classes online that can teach you new skills, from coding to cooking. Websites like Khan Academy, Coursera and YouTube have tutorials on almost anything you want to learn.
Community college: Taking a class at a local community college can be a cost-effective way to advance your education. Many colleges offer night and weekend classes so you can fit them into your schedule.
Certifications: Certain careers require specific certifications rather than full degrees. These certifications can often be obtained faster and cheaper than a degree. They can make a big difference in fields like IT and healthcare and in skilled trades.
Do you have a specific skill or idea for a business you would like to pursue? Try to put a little money into engaging in that business as a side hustle. You don’t have to jump into the deep end right away. Keep it as a side thing until you start making enough to invest the money or to replace your current job.
Why It’s Important To Start Now
Even small investments can grow over time thanks to compound interest. That is when your investments earn money, and then that money earns more money. Over many years, this can turn even modest savings into a significant amount of funds.
In fact, you can beat much more well-off investors if you just start putting money in the market earlier than they do. Let’s take a look at a hypothetical example.
Two investors start putting money monthly into an S&P 500 index fund with an annual average return of 10%. The first investor starts when they are 25 years old, putting in $100 per month for 40 years, until they are 65. The second investor doesn’t start putting any money in until they are 45 years old, but they put in $700 per month for 20 years, until they are 65 as well.
The second investor put in more money overall — $168,000 versus the first investor’s $48,000. However, the first investor will have about $559,561 at 65, while the second investor will have less, about $507,491.
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This article originally appeared on GOBankingRates.com: 4 Ways To Grow Your Wealth When Money Is Tight
