How to Start Investing When You Don’t Have Much Money

One of the biggest misconceptions about investing is that you need a lot of money to get started. The truth, though, is that you can start investing with pocket change.

Let’s look at how to invest small amounts of money.

Erika Taught Me

  • Small amounts of money can grow over time, thanks to compound interest.
  • Make investing automatic through your work retirement plan, investment app round-ups, and dividend reinvestment plans.
  • As your financial situation improves, you can increase how much you set aside.

. . .

You Don’t Need Much Money To Start Investing

Investing puts your money to work for you — and you might be surprised at how little you need to get started!

Investment apps like Acorns, Robinhood, and Stash all let you start investing with as little as a dollar — meaning you can essentially start investing with pocket change. 

Another popular investment app for beginners is Webull, which lets you start investing with just a $5 minimum.

Plus, if you work for a company that offers a retirement plan, you can make it automatic, with the investment money coming from your paycheck before you miss it. 

The earlier you start, the longer your money has to grow. While $1 today won’t be enough to retire on tomorrow, you will be building a habit to carry you into the future. 

Once you have more income, you can increase how much you invest over time.

How To Build Assets With Little Money

Here are the steps to take as you start investing when you don’t have much money:

1. Figure out how much you can invest each month

Review your budget. See if you can free up a small amount. Even starting with $5 a week can be effective in the long run. Consistency is what matters.

READ MORE: How To Budget: 5 Simple Steps

2. Make it automatic

Don’t think about it. Set up an automatic investment. You can have money deducted from your paycheck and invested in a retirement plan. Or use an investment app and set up automatic transfers from your checking account.

3. Choose investments that pay dividends

Dividends are payouts you get for owning certain investments. Many dividend-paying stocks and funds offer automatic reinvestment of your dividends, helping you build assets faster with “free” money.

4. Increase the amount you invest over time

As you earn more money, increase the amount of your investments. This will create a snowball effect, as your “ball” of wealth keeps getting bigger.

How To Invest Small Amounts of Money

There are several strategies you can use to invest small amounts of money.

Start with your company retirement plan

If your company offers a 401(k) or other retirement plan, have a small amount withheld from each paycheck. It will be added to your retirement account, where you can choose from various funds. 

It’s even better if your company offers a matching contribution. Depending on how the match works, you get free money for each dollar you invest. 

For example, if your company will match 50% of your contributions (up to a certain amount), you will get a free $5 for every $10 you invest. That free money adds up when it’s invested over time!

Some retirement plans allow you to automatically step up your investment every year. Consider increasing your withholding by 1% a year. You’ll invest more without thinking about it.

READ MORE: How To Save for Retirement

Use automatic investing

Most investment apps let you set up automatic transfers. For example, you can open a Robinhood account and decide to transfer $10 a week. If you have a designated investment, the app will buy as many shares as possible with your money.

Reevaluate your regular transfer every six to 12 months. Increase what you’re automatically transferring from your checking account to your investment account when possible.

Keep investing even during downturns. In fact, if you’re consistent with automatic investing when the market is down, it’s like getting your investments on sale.

Buy fractional shares

Many investing platforms, such as Webull, allow you to buy fractional shares, which is a piece of a stock or fund. Depending on the program, you can buy as little as 1/8 of a share. 

That means you don’t need enough money to buy a full share — you can load up on shares one fraction at a time. 

@erikakullberg

Investing on a budget 🤯🤫 #lawyer #erikataughtme There’s this myth that you have to have a lot of money to invest. But the truth is: you don’t Fractional shares allow you to buy pieces of a share (instead of the whole share). Now I know investing seems scary or complicated (I used to feel that way), which is why I’m hosting a free 5 Day Investing Challenge to show you step-by-step how to open an account, how much to invest, what to invest in, and so much more. It’s completely free to join and the deadline to sign up is Sunday, April 28. Go to Erika.com/invest or click the link in bio to secure your spot. ➡️ Erika.com/INVEST to grab your free spot

♬ original sound – Money Lawyer Erika

Sign up for DRIPs

A dividend reinvestment plan (DRIP) allows you to put the “free” money you get from dividends to work without you needing to do anything extra. 

Let’s say you decide to invest in an exchange-traded fund (ETF) that pays a dividend of $0.25 for each share you own. If you own 10 shares of that ETF, you’ll get $2.50 the next time a dividend is paid. 

With a DRIP, that $2.50 is used to buy fractional shares of the ETF. So, if a share of the ETF costs $10, your dividend will get you another 1/4 of a share. The next time dividends are paid, you’ll receive $2.56 in dividends.

It doesn’t seem like a lot in the grand scheme of things, but the longer you use a DRIP, those small numbers will add up. 

Also, if you consistently buy shares, you can accelerate the process. For example, if you put $5 a week into that ETF, you’re buying half a share each week, or about two shares per month. 

If the company pays dividends every six months, your new amount will be based on the 12 new shares, plus the 10.25 shares you had after your last dividend reinvestment. Now your “free money” is $5.56 in dividends. That’s an extra half-share added to your total, and it keeps growing over time. 

The more you invest, the more you receive in dividends, and as you reinvest those dividends, you speed up the process.

Look for a platform with round-ups

While you’re doing all of this, you can also boost your investing with round-ups. Some platforms, like Acorns and Stash, will connect to your bank accounts and credit cards. You can choose to round purchases up to the next dollar and invest the resulting pocket change.

For example, you pay $3.67 for something. The app will take $0.33 out of your bank account and put it in your investment account for use in later asset purchases. 

It’s a way to sprinkle your way to better returns over time. You “paid” $4 for the purchase, but you probably didn’t miss the extra few cents — and now it’s contributing to your future wealth.

READ MORE: Where to Start Investing: Effective Money Growth for Beginners

FAQs

Is it better to save or invest?

Both saving and investing are important parts of improving your finances. Investing, however, will help you grow your wealth in a way that saving won’t, since the interest you earn on savings accounts isn’t as high as the typical return from investments. 

Investing offers a better chance for your money to work for you.

How much should I invest as a beginner?

Consider investing as much as you can as a beginner. Many platforms let you start investing with as little as $1. Figure out how much you can set aside to invest each month and be consistent about it.

Wrapping Up

Small amounts alone won’t build a full-on retirement nest egg, but they are a good foundation. 

Increase what you set aside over time, and keep investing consistently. You’ll build good habits and as you step up your investments, you’ll eventually reach your wealth goals.

For more investing advice no matter your budget, check out these episodes of the Erika Taught Me podcast:

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.