It can be daunting to think about saving when you have a small income or budget. Building out your financial plan in a way that lets you budget a little of your income towards investments could go a long way. In fact, investing may be easier than you think, and not just for people with big salaries. Follow these tips on how to invest on a small budget. While you may need short-term loans or installment loans to deal with unexpected bills, investing can help you build long-term wealth.
Learning How to Invest
Smart investment tips can get you on the right track to achieving financial success. Keep in mind that some of these investments are riskier than others. If you are unsure about deciding where your investments should be going, consult a financial advisor for more information.
1. Automate Savings
Now that you know you want to start saving, you must understand how to invest on a small budget. One of the best things you can do once you know that you have enough to start saving money is setting aside a certain amount of your income to a savings account. If you receive a direct deposit to your bank, you can set up an automated transaction that takes a certain amount of every paycheck and moves that amount straight to a savings account. While you won’t earn much in interest from the money in a savings account, it’s a great way to start accumulating a larger amount of capital for higher risk investments later on.
2. Enroll in Employers Retirement Plan
Check to see if your employer offers a retirement plan that matches your investment. This is a great tax benefit because the contributions your company makes to your retirement plan will not be subject to tax. The contributions you make will be tax-deductible, which is one of the best smart investment tips for the long term. Countless people do not think to prepare for their future but doing so will set you up for retirement and help reduce your current tax burden.
For example, if you designate five percent of your paycheck towards your employer’s retirement plan, the amount the company matches will be exempt from income tax. This is perhaps one of the easiest ways to learn how to invest on a small budget today.
3. Invest the Extras
If you’ve ever been hit with an unexpected bill or expense, you know how financially devastating it can be. If you reverse the roles and add any unexpected cash payments to your investment plan, you could save yourself from financial distress. In fact, bonuses, tax refunds, or cash back from your credit card are all different means in which you could add to your investment plan. You’ll eventually have enough money to invest in higher-risk investments as described below.
4. Invest in Low-Risk Mutual Funds
Once you have some money saved up in a savings account and have a steady stream of investments towards your retirement plan, it may be a good time to think about investing in stocks and bonds. Taking a portion of your capital from your savings account for mutual funds is a smart investment tip. Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds. Different mutual funds have different investment minimums and fees, so be sure to compare across mutual fund companies and consult a financial advisor if you have any questions. Once you’re familiar with these types of investments and you’ve stabilized your budget, you can typically set up an automatic deposit through your payroll to start automating your investments.
5. Invest in a Real Estate Investment Trust
The last part of learning how to invest on a small budget involves Real Estate Investment Trusts (REIT). A REIT is a corporation that owns a group of properties or mortgages that produce income. If you invest in a REIT, you’re entitled to a share of that income. This is also often called real estate crowdfunding. Returns from real estate crowdfunding platforms typically range from 8% to 12% a year and require a $5,000 investment. If you are looking to continue building your wealth at a higher risk and are able to afford the minimum payment, but don’t have the means to make a down payment on a home or afford a mortgage, a REIT may be the right choice for you. It is important to keep in mind that these types of investments carry more risk than traditional investments like mutual funds.
By following these smart investment tips, you can grow your modest savings over time to build great wealth. When figuring out your investments, it may help to visualize yourself making incremental steps, from starting automatic savings to reinvesting tax refunds and bonuses to compounding investments.
Small Steps Toward a Better Financial Future
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