5 Ways Low-Income Earners Can Still Invest

If your paycheck is on the smaller side, you might think investing is out of the question — but it isn’t.

Putting aside extra cash when there’s barely enough to make ends meet can certainly be challenging. However, if you’re committed to the cause, you might surprise yourself with what you can do.

“Investing as a low-income earner might seem daunting, but with the right strategy, it’s entirely possible,” said David Watson II, a prosperity planner at Goodwill Industries of Central Florida.

If you’re ready to start investing, he created a step-by-step guide to help grow your wealth. Keep reading to learn his tips for investing on a limited budget.

“Before investing, it’s important to have a budget that helps you save consistently,” he said. 

To get started, he recommended taking these three steps.

• Track your expenses: “Write down everything you spend for a month,” he said. “Look for areas where you can cut back.”
• Create a budget: “Allocate your income toward essentials, savings and discretionary spending,” he said.
• Set aside savings: “Even if it’s a small amount, make sure you save regularly,” he said. “You can start with as little as $10 per week.” 

For example, he said if your monthly income is $2,000, your expenses — i.e., rent, food and utilities — are $1,700 and your discretionary spending is $200, you can save $100.

“By saving $100 each month, you’ll have $1,200 saved by the end of the year,” he said.

If you don’t already have an emergency fund, Watson said you need one before you start investing.

“This is typically three to six months’ worth of living expenses,” he said. “This will protect you from having to dip into investments if an emergency arises.”

If your monthly expenses are $1,700, he said you should aim to have $5,100 to $10,200 in your emergency fund. For example, if you saved $100 per month, with an emergency fund goal of $5,100, he said you would reach your goal in 51 months — or 4 1/4 years.

“Once you’ve built an emergency fund, you can start investing, even with small amounts,” he said.

He shared three different options to choose from.

Option 1: Invest In Low-Cost Index Funds or ETFs

“Index funds and exchange-traded funds (ETFs) are collections of stocks or bonds that track a market index (e.g., S&P 500),” he said. “They offer diversification and have low fees, which helps you grow your money over time.”

A major bonus, you can get started with a minimal investment.

“Many brokers allow you to start with as little as $50 to $100,” he said. “Look for platforms like Vanguard, Fidelity or apps like Robinhood or Acorns that offer no-fee trading.”

For example, if your initial investment was $100, you contributed $50 per month thereafter and your annual return was 7%, after 10 years, your total contribution would be $6,100, he said. However, your total investment — assuming monthly compounding — would be $8,855.21.

Just like that, you’ve earned another $2,700-plus thanks to small investments.

Option 2: Use a Robo-Advisor 

“Robo-advisors are automated platforms that create and manage a diversified portfolio for you based on your financial goals and risk tolerance,” he said. “They often have low fees and can be a good option for beginners who don’t want to pick individual stocks.”

He said investment platforms like Betterment and Wealthfront allow you to get started with as little as $500 or less.

Option 3: Invest In Fractional Shares

“Fractional investing allows you to buy a small portion of a share, instead of the whole share,” he said. “This makes it easier to invest in expensive stocks like Amazon or Tesla with smaller amounts of money.”

He said this can be a good idea if you want invest in high-quality companies, but can’t afford to purchase a full share.

“Many brokers, such as Robinhood or Schwab, allow you to buy fractional shares,” he said. 

“The key to growing wealth through investing is to stay consistent and reinvest your earnings,” he said.

For example, if you continue to invest $50 per month at a 7% annual return, he said the compound interest will add up. Specifically, you’ll have $8,855.21, after 10 years, $26,450.21 after 20 years and $61,810.20 after 30 years.

“Over time, your contributions combined with the power of compounding will significantly grow your wealth,” he said. “The longer you stay invested, the more your money can grow.”

“As you learn more about investing, you may want to adjust your strategy,” he said. “Consider diversifying into other assets like bonds, real estate (through REITs) or dividend-paying stocks.”

Ultimately, he said patience and consistency are a must when investing as a low-income earner.

“By budgeting, saving and investing small amounts over time, you can build wealth and secure your financial future,” he said. “Even if you start small, your investments will grow as long as you stay committed.”

It might take awhile before you amass a notable wealth, but try to stay motivated by thinking about the financial gift you’re giving your future self.