How to Start Investing When You’re Broke
At the ripe age of twenty, I realized that you need money to make money. It put a serious damper on my investing ambitions. And that sucks. Beyond a job (which is “Just Over Broke”), there are not too many things in life that you can do (legally) to make money without starting with money.
It’s a harsh realization to come across. Most twenty year-olds who want to try their hand at investing don’t have money to invest with because they have meager savings (or no savings) and a lot of bills to pay on their modest incomes. It is a vicious cycle. But there is a way to start.
So how do you get started?
You have to begin by putting money aside, preferably into an interest baring account, ie: a savings account, a money market account or CD. This is so that you can benefit from the power of compounding interest while you save and will be less tempted to spend it unnecessarily. Set up an auto-savings plan if you can. This will help boost your balance over time. Save what you can. Don’t pinch the wallet if it means you won’t eat. Try giving up a small luxury (I gave up getting Starbucks everyday). And remember, even if it is only $20 a paycheck, it is still a start and it is better than nothing. If you can do more, that’s great. Watch you balance grow.
How much should I save?
How much you save will be how much that you decide you need to invest. For some reason, people seem to think it is a magical amount and BAM… you can invest! But it’s not like that. It is a matter of opinion and is strongly influenced by your investment goals, your requirements and how much risk you will be willing to take. However, it can be argued that the minimum is around $1,000 to $2,000 for an individual investor. But be prepared to lose it all. Make sure that this is your “play money” and that you can afford to lose. It should not be money that you need to pay bills next month and are looking to make a quick buck on. Beginners luck is not a sound investment!
Woah, $1,000??? At $20 a paycheck… that’ll take me almost two years to save up!!
Yeah, very true. But $20 a paycheck is not much. If you think about it, you could probably save more than that. It is added incentive to save a little more when you can because it will bring you closer to your goal. And while you are saving, it would be a valuable use of your time to learn how to evaluate companies and learn how to trade. Get into the habit of watching the stocks and keep track of what you would like to invest in. Try paper trading, which simply means you pretend you bought the stock at X price and you watch it go up (or down) and calculate your earnings. There may be times where you are missing the investment of a lifetime… but chances are that it is not. There will be more opportunities. Trust me. Don’t be tempted to jump into investing until you safely can. The time that you take to save your investment nest egg should be the time to learn and make mistakes. And when you reach that $1,000 you will be adequately prepared to invest without staying broke!
If you would like to make a comment, please fill out the form below.
[...] of us starting out who are skeptical on putting money into stocks just to watch the value diminish. Starting to invest can also include researching and learning fundamentals of the market. By the age of 30 you should [...]