One question we often receive at our focus groups talking about our wealth calculator is how much money do you need to start investing in stocks?
It’s a good question. Here’s a good answer:
It’s not about how much you invest. It’s about starting as soon as you can and investing regularly.
And, you also need to ensure you pay off any consumer debt (e.g. credit cards) that would negate your investment earnings.
A Practical View on How to Start Investing
With this age of apps and digital business, it’s actually very easy to get started investing in the stock market with very little money. We recommend starting with an account somewhere like Betterment, but it’s easy to find options for low-cost starter index funds (your best option if your investing funds are low).
Here’s why you shouldn’t worry about how much you need to start investing, but starting and investing regularly:
- By getting your investments started early, you can use the power of compounding to grow your small investment, allowing you to grow into other investing options.
- Starting a practice of regularly investments ensures that you are creating a habit of investing, all-but-guaranteeing you to have a rewarding financial future.
- If you have some “skin in the game,” so to speak, you will be more likely to educate yourself further on investment topics, whether that’s via our free course, online webinars, or even seeing a financial advisor.
As I mentioned earlier just briefly, you should also be mindful of any consumer debt you may have. If you have credit cards racking up debt at 18% interest, your 10% stock growth means you’re net -8%. So while you should start investing early, taking care of high-interest debt should be an even higher priority.
One way you might want to look at this is to decide on a % of your income that you’ll invest into your financial future each month. So, for example, you say you make $2,000/month right now and you’re willing to invest 2.5%. That’s $50/month – a great start. If you get a new job that pays you $3,000/month, you should stick to your current investment percentage (which means you’re now going to put away $75/month). Use our wealth calculator to see how your monthly investments will grow with time.
Lastly, any time that you get an unexpected financial windfall – a tax refund, a Christmas bonus, inheritance – consider putting at least 50% of that windfall into your investments. Even a one-time bump can make a major increase in your future finances if compounded over 15 or 20 years.