Can I Invest When on a Budget?

Investing for the future, for many people, seems like a virtual impossibility. Many individuals entering the workforce and others work multiple jobs to get by and simultaneously owe a huge amount of debt – an average of over $27,000. Daily expenses, debt repayments, and multiple job commitments seem to leave very little room for investment. But investing is an important aspect of sound financial planning that should never be ignored under any circumstances. Conventional investment options like saving accounts provide extremely low returns that cannot even keep up with inflation. Below we share some simple and effective alternative investment options that could help you improve your financial standing.

Evaluate Investment Minimums and Ongoing Fees

Many cash-strapped individuals do not consider dabbling in investment due to the perception that there is a large initial capital requirement. As a fledgling investor, you should seek out the funds or brokerage opportunities with a low minimum initial balance. USAA and OptionsHouse are good options for first-time investors as they require no mandatory initial investment.

Once you have produced a list of potential investment opportunities, calculate all the fees associated with your desired funds. Tax refunds or other cash credits can be used to open an account, but it’s important to be wary of different fees that could arise on investments. Some of the fees that you need to watch out for include:

  • Inactivity Fees – Most funds carry a minimum trade requirement per annum that needs to be met in order to avoid inactivity fees. Usually, brokerages require at least 1 or 2 trades during a year but IRA funds are typically exempt from this requirement.
  • Account Transfer Fee – You might feel that jumping from one fund to another is a good idea if you see a great investment opportunity, but before doing so ensure that there are little to no transfer fees.
  • Expense Ratio – These are the operating cost percentage associated with your brokerage fund. Try to invest in funds that carry lower operating fees. An ideal brokerage fund should have 0.75% or lower operating costs – some index funds now have 0.10% fees.

Index Funds

Index funds are generally ETFs (Exchange Traded Funds) or mutual funds that are governed by automated rules. Index funds may be attached to the performance of a particular index (the NASDAQ or DOW Jones, for example) or act like corporate bonds that are based on any type of security. Index funds do not require a dedicated fund manager, therefore, they are considered passively managed. This passive nature provides investors with the dual benefits of:

  • Good Performance – Actively managed funds seek to trump the performance of the market but in reality, only around 24% of managers succeed in achieving this goal. Index funds, on the other hand, are more consistent in nature and tend to provide better aggregate results after fees.
  • Lower Cost – Index managed funds carry very little associated cost because they don’t require a dedicated team to constantly monitor them.

Invest in a Roth IRA

There is no argument that retirement savings are extremely important. But low-income individuals or daily waged workers may not have access to saving options such as a 401(k) scheme. In such a scenario, it can be prudent to invest in a Roth IRA fund. Funds invested in a Roth IRA are taxed at a lower rate when you deposit in the fund and there’s no tax upon withdrawing funds.

Automate your Investments

Planning is key when it comes to making smart investment decisions. Once you have invested the initial amount in the appropriate scheme you can make arrangements with your bank to deduct a fixed amount automatically for the investment scheme. With the right opportunity, you can consider making this initial investment using a title loan or an arranged overdraft.

Try to cut back on unneeded expenses to get some extra funds for investment. Note that an investment needs to mature for some time before it can provide the full benefit, therefore, do not withdraw your investment money unless an emergency arises.

Final Words

Investing is a good way to improve your financial situation. You do not need to be a millionaire to consider saving or investing. Making smart choices, being patient, and choosing wisely are central towards successful financial planning no matter how much you have in the bank.

All investment opportunities discussed above carry one or another form of risk that you as an investor should be aware of. Do not invest all of your savings in a single scheme, but rather create a diversified portfolio that distributes risk over a number of investment platforms.

If you wish to plan your financial future, you must learn how to save money
It is more than half of year now. Maybe our budget is needed to change.

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