Investing on a Budget—Useful Tips for Beginners

Updated · Dec 01, 2022

The stock market isn’t just for the wealthy. Trading is a great way to increase your income, no matter how much you earn now.

But investing on a budget can be challenging.

To help you get started, we list some useful tips below.

Start Saving

There are plenty of ways to invest money online. And while you don’t need a fortune to get started, you do need a buffer.

So, before you dive into the stock market, make sure to pay off your debt and build a fully-funded emergency fund. Remember, you should only invest what you can afford to lose.

You can’t make withdrawals every time you need to buy something; you’ll end up losing money to fees and market fluctuations.

So, you need some surplus to invest. And that simply isn’t possible if you owe money, so start there. Next, to avoid getting into more debt, save up an emergency fund you can dip into.

If ​​you’re wondering how to start budgeting, check out Dave Ramsey’s baby steps. They can help you achieve financial freedom in no time.

And meanwhile, you can do some research.

Learn About Investing

While you’re saving money, learn more about the financial world.

You may be eager to start trading right away, but you can’t do that if you don’t know anything about the stock market.

Learning how to invest in stocks for beginners with little money is no easy feat. So, read as much as you can about investment strategies, the different types of securities, stock analysis, and so on.

There are plenty of guides, podcasts, and even full-blown courses online. And a lot of the content is free.

You also have to find a trading platform that suits your profile. Do you want to trade dogecoin on TD Ameritrade or boost your retirement fund through Fidelity Investments?

The choice depends mostly on your goals.

So, do your research, create an account, and try out a few online brokerages. That way, when you’re ready, you can start investing right away.

Define Your Investment Goals

While you’re learning how to invest money to make money, you may come across conflicting pieces of advice. Remember that there’s no one correct way to go about trading.

There’s no one-size-fits-all approach. You need to define your goals and find a strategy that is suitable for you.

Some investors are more aggressive, using a hands-on approach and taking big risks in the name of a bigger profit. Others prefer to play it safe, build a balanced portfolio, and let it work for them.

Both approaches are valid, and so are the numerous options in-between. You just need to figure out what you want to achieve and when. The level of risk you can tolerate is also important.

Knowing your personal investment style will help you stay on track and make smart decisions about your finances.

Invest Through Your Employer

If your employer provides a 401(k) plan, take advantage of it. That’s a great way to secure your financial future.

Granted, it won’t make you the next Warren Buffett, but if you’re still figuring out how to start investing money and you have a limited budget, you won’t become a billionaire overnight anyway.

As of 2022, you can contribute up to $20,500 a year to your 401(k) ($27,000 if you’re over 50). But the best part is that most employers offer to match your contribution.

That’s free money right in your… well, future pocket. It would be a shame not to take advantage of it.

Plus, you can contribute as little as 1% of your salary, and it’ll still amount to something meaningful with your employer’s match. You won’t feel it now, and it’ll make a huge difference in the future.

Open an Individual Tax-Advantaged Retirement Account

One of the easiest ways to invest on a shoestring budget is to open a retirement account. There’s no minimum contribution, and you’ll get tax advantages.

Even if you already have a 401(k), you can still open a traditional or Roth IRA. The tax benefits make them great low-cost investments.

With a traditional IRA, you can make tax-free contributions to your account. Just note that you will have to pay taxes when you withdraw the money. As such, this option is more suitable if you expect to be in a lower tax bracket when you retire.

In contrast, with a Roth IRA, you make after-tax contributions, but you make tax-free withdrawals later on. This account is suitable for younger individuals who expect their income to grow.

It’s also a better choice if you already have a 401(k), as that has very similar benefits to a traditional IRA.

Either way, it’s the best way to invest money for retirement.

Of course, there are other differences between retirement accounts apart from the type of advantages, so do your research carefully.

Buy Commission-Free ETFs

If you’re investing on a budget, your funds will be limited. And there’s nothing wrong with starting small. In fact, it can be a good way to ease into the trading world.

With smaller amounts, the risks you’re taking are smaller. Still, you don’t want to put all your eggs in one basket. You should diversify and gradually build a balanced portfolio.

Mutual funds and ETFs are a great way to do that. Especially at first, when you don’t have much experience with investing.

The two types of accounts are very similar. Both are great options for investing money for beginners since they offer diversification and require little to no effort from the investor.

Most mutual funds are managed by a broker, so they may offer slightly better returns. That said, they are more expensive than ETFs.

If you’re looking for a budget way into the stock market, ETFs may be the best option. They usually track indices, cutting down the fees associated with active account management.

The downside is that if the index’s performance declines, so does the ETF. Still, they tend to earn good returns in the long term.

Whether you choose mutual funds or an ETF, you can find low-cost investing options with small fees. Just do your research before opening an account.

Real Estate Crowdfunding

A common answer to the question “What can I invest in to make money?” is “The real estate market.”

But how can you do this if you have no money and property?

In the same way, you can buy shares of a company without owning the entire business. Real estate crowdfunding is similar to equity financing in that sense.

In exchange for a small amount of money, you get partial ownership of a property. This means you are entitled to a portion of the profit it makes.

Apart from being a good investment, real estate is a great way to diversify your portfolio. It is affordable but not the cheapest, as it usually requires a minimum investment of around $5,000.

If you can’t afford that, here are a few small investment ideas.

Best Stocks for Beginners With Little Money

We can’t give you a ready-made list of stocks to buy because everyone’s style and goals are different.

We can give you some investment tips for beginners, though—things to avoid and look for.

If you’re just starting out with trading, stock market fluctuations can seem scary, and you may be tempted to pull out your money at the wrong time.

As such, it’s better to start investing in stocks that demonstrate stable, even if small, growth. Once you get a feel of the market, you can try your luck with riskier investments.

But initially, stick to companies with a large market cap and low volatility. You can try some of the big names out there—like Berkshire Hathaway, Apple, and The Walt Disney Company.

While there may be some surprises (take, for example, Facebook and its falling stock prices), you can expect steady growth over time.

You won’t get rich overnight, but it’s a great way to test the waters without taking a big risk.

Wrap Up

Investing on a budget can be a challenge, but it’s not impossible. We showed you how to prepare and get started.

All you have to do is follow our tips and walk the path to financial security.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.