How to Start Investing When You Don’t Make a Ton of Money

If you're living paycheck-to-paycheck, without much wiggle room in your budget, you might assume that investing just isn't something you can do right now. And in some cases you may be right.

Sometimes you really do just need to focus on paying your bills, keeping food on the table, and getting your budget in order. But you don't need to have a lot of money to start investing. There are a number of ways to get started on a tight budget, and every little bit you can save and invest now will make things easier on you down the line.

Here are a few ways to get started.

Focus on what matters

Most of the news you hear about investing focuses on the ups and downs of the stock market. And while that can certainly be entertaining, the truth is that those ups and downs are largely irrelevant when you're just starting out.

There are two things that do matter though, and both your wallet and your anxiety level will thank you for focusing on them instead:

  1. Your savings rateNo other factor is even remotely important as your savings rate. Investing even a little bit now will help, and finding small ways to increase that savings over time go a lot further than trying to study or time the stock market.
  2. CostsCost is the single best predictor of future investment returns, with lower costs leading to better returns. And minimizing your costs is especially crucial when you're on a tight budget, since even small fees can take a huge bite out of your savings.

Build an emergency fund

An emergency fund is simply money you keep in a savings account for those unexpected expenses life always seems to throw your way.

And while this isn't technically an investment in the sense that you're not putting money into mutual funds, stocks, or bonds, there are a few reasons why it's a great first step:

  1. It's an investment in your financial security, and a secure financial foundation makes it easier to invest in your financial future.
  2. Good savings accounts come without any minimum balance or contribution requirements, so you can get started with any dollar amount.
  3. Given that your savings rate is far more important than your investment return, you're not sacrificing as much as you might think by keeping your money out of the market.
  4. The skills needed to build an emergency fund — namely making regular contributions and letting the money grow without touching it — are skills that will also help you build your investments. Honing them now will help you later.

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