You do not need to be affluent to start investing money, but this is imperative to stand firm against soaring inflation. Thanks to modern investing methods, you can build your portfolio by investing as little money as possible.
Savings and investments are two different things. The former is required to cover unexpected expenses such as car repair, laptop purchase, etc. However, the latter helps maintain the value of your money. With the rising cost of living, the buying power keeps falling down. You will need to invest money to make more money.
Ask yourself why?
There are a couple of ways to invest money, but first, you need to know the reason why you want to do it. This will help you set a target and stick to your investment plan. You may be looking forward to investing money because:
- You want to make your money work for you.
- Your savings account does not offer attractive interest.
- You want to build your retirement funds faster.
- You want to take early retirement.
Are you ready to invest money?
You may be tempted to invest your money to build your wealth sooner rather than later, but you should wait until the right time comes. Do not forget that the money you will invest will shrink your budget for regular expenses. You can start investing money when:
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You should pay off high-interest debt
With debts to be paid off, investing money is impossible. In fact, it does not make sense at all. The money you use to buy stocks and funds can be used to settle your debts. Outstanding balances will accrue interest, so make sure that you clear your dues first.
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Build an emergency fund
You should have an emergency fund of at least three-month worth of living expenses. Make it up to six months’ worth of living costs if possible. Having an emergency cushion before investing money will protect your finances when you come across an emergency. However, you can borrow from private lenders in the UK if you still need money.
4 Tips To Start Investing Money With Little Money
Here are the tips you should follow to start building an investment portfolio:
- First, save some money
Taking a chunk of money from your earnings may not be easy, so try to save up every week or month as you feel comfortable. For instance, you can save up to £50 every month. This is very little money, so it will not be much burden on you.
It seems a very small sum, but it will add up to £600 at the end of the year. Put this money into an envelope, jar, etc., and once you have saved some money, you can invest it in stocks, mutual funds, etc.
- Buy fixed deposit
Not everyone is comfortable with investing money in volatile assets like shares. As a beginner, you might not have a strong risk-bearing capacity. Try to choose safer investment options as well. Experts suggest a mix of investments to have a rich portfolio and fend off the risks of losing money.
A fixed deposit is the safest investment. It means you will not be able to access that money for a particular time. Your bank will give interest to you when it matures. This is quite attractive compared to the interest you get in your savings account.
You should renew your fixed deposit so you keep earning interest annually. You can also get interest every quarter. The benefit of having a fixed deposit is that you can use the interest income for unexpected expenses. This is how you can avoid taking out very bad credit loans with no guarantor from a direct lender.
- Contribute to employer’s retirement plan
Enrolling in an employer’s pension scheme is a must, especially if you do not earn a lot of money. Your employer will deduct a fixed sum of money from your current salary. You can make a higher contribution if your budget allows.
If your employer does not have a scheme to run pension funds, you should consider contributing to a private pension fund. You will be responsible for contributing money to the pension account every month. This will stay safe as you cannot dip into it. You will cash out money at the time of retirement.
You can increase your contribution by the year. As your increment goes up, you should increase your contribution as well. If you contribute to your employer’s retirement plan, you can increase your contribution on top of the bare minimum. Your savings will significantly increase.
- Use robo-advisors
You can invest money using your own knowledge or robo-advisors. As a beginner, it might be difficult for you to research which stocks and bonds should be bought manually. You will certainly need to consult a broker who will analyse your risk-tolerance capacity.
However, you do not need to consult a broker, as robo-advisors can do everything on your behalf. You do not have to have any experience in the investing world. Robo-advisors will ask you a couple of questions to know your investment goals and risk-bearing capacity.
The robo-advisor then uses this information to determine the assets in which money should be invested. The best part about the use of robo-advisors is that you will be able to create a low-cost, diversified investment portfolio. Do not forget that you will have to pay some fees. However, it is very nominal.
The final word
Undoubtedly, you can invest even with little money. You can consider various types of assets to invest money in, like fixed deposits, shares, bonds, and mutual funds. Do not forget to contribute to your pension account as well.
Before you start investing money, you should clear your debts and have an emergency cushion. An emergency corpus will help you tick over when financial emergencies crop up. Investing money is crucial to prevent the present value of your money. So, when are you going to invest money?
