How To Invest For Retirement With A Small Budget

Last Updated by Neiko Johnson on 
August 15, 2021
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Investing For Retirement

Want to learn how to invest for retirement? Here are our tips on where to start even if you have a small budget.

We always believe the first thing to do when you want to start investing is to simply get started.

But, what if you don't know where to start when it comes to investing for retirement?

Certainly, not knowing how to start can be intimidating, stressful, and scary at the beginning.

That is to say, it may be intimidating but it will be one of the best decisions you make when it comes to preparing for retirement.

It's very important to create a habit of investing at an early age instead of racking up debt.

We are not sure where you are right now in life, how much money you have saved, or in your checking account, but when you are free of debt it allows you to invest in your future.

We hope today's post will help you feel more confident with investing for retirement so you can build wealth and live the life you want to live.

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Make Room In Your Budget To Invest For Retirement

When you decide to start investing but realize you have no money, you will have to start rearranging your budget to find extra money.

Most importantly, take time to review everything you spend money on each month and see if there are any expenses you can eliminate.

This small sacrifice will pay off in the long run when your investment is growing. You will have to decide if cutting expenses is worth working towards financial freedom. You can find ways to cut expenses and not completely change your lifestyle.

While reviewing your budget, you may find $50 to $100 per month that can be reallocated to investing. This is more than enough to get started.

As you start to cut expenses for retirement, you will find ways to cut more expenses and use that money for other financial goals.

You can even consider selling personal items you no longer need to speed up your investment plans.

Investing for retirement will all be easier once you make room in your budget.

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Use An Investment App

There are many ways to start investing. In fact, you can invest through payroll deduction or an IRA.

Another great way to invest is using an investment app with as little as $5. There are great investment apps for $10 or less and they are legitimate. Our favorite choice is Acorns.

Acorns is a micro-savings and micro-investing app. It's probably one of the better know apps in the industry. According to Acorns, nearly four million people are using their app to save and invest.

Acorns works by "investing your spare change" through an automated process called "round-up."

You simply connect your bank account to Acorns and when you make a purchase the charge is rounded up to the next dollar.

For example, if you make a purchase for $5.25, Acorns withdraws $6 from your checking account. The vendor pays $5.25 and the remaining $0.75 is set aside for savings.

When you reach $5 the money is transferred over to your Acorns investment account. That is to say, Acorns will help you invest and save money even with a small budget.

Maximize Payroll Deductions

Most of us are used to automating our paychecks into our checking accounts. However, you can automate depositing money into just about any account.

Most employers will allow you to automatically deposit money into multiple accounts or you can choose to have all of your paycheck deposited into one account.

This is great because you can automate depositing money into a savings account. In fact, you can deposit $50 per paycheck and if you're paid twice a month you will have $100 per month saved. That's $1,200 per year!

Above all, you will reach having $1,000 saved in just one year and it will be fully automated. This is what makes payroll deductions one of the most effective strategies to save money.

Choose The Right Retirement Plan

When it comes to saving money for retirement, it's important to choose a plan that works for you. The most logical place to start is investing with your employer through your 401(k).

This gives you the opportunity to invest in the market and control how much you invest each month. Most employers will allow you to invest immediately and you can start saving for retirement.

On the other hand, if you don't have an employer-sponsored retirement account, you can invest in an IRA (Individual Retirement Account). An IRA does have limits on the amount you can contribute but you can receive a tax deduction for doing so.

You can still invest in an IRA in addition to your employer-sponsored retirement plan. It's best to start with the 401(k) since most employers offer a match.

Most importantly, make sure you are comfortable with the amount you are investing and increase your contributions as you go.

Save Some Pre-Investment Money

"The best time to start investing was yesterday; the second best is today."

We love this quote because it summarizes how important investing for retirement is. You should get started now and plan to start setting aside money.

To get started with investing you will need to have some money. The amount of money you need is completely up to you. However, the more you can save the better off you will be.

Of course, you may be thinking how do I save for retirement if I don't have any extra money?

The main key is to save as much as you can for retirement. Our rule of thumb is to invest 15-20% of your take-home pay once you're debt-free. But,  this may not be possible at first when you don't have much extra each month.

To go further, 10% may not be possible. But any little bit is a great start. Even if you are not able to invest much, just save something!

Investing with a small budget can even mean as little as $20 a month. And yes seriously every little bit helps.

Even if you only start with $5 a month, set that amount to the side and keep saving more as you can.

You can be working towards creating financial security and still start to invest for retirement. As we said before, the smallest amount of money can make a difference.

Don't feel discouraged if you are starting slow with investing. You can always catch up later as you find more money in your budget.

Final Words – Investing With A Small Budget

Learning how to invest even with a small budget is an important step for your financial future.

Now that you know what steps to take, it will only get easier from here. The hard part is done and you are now prepared to invest for retirement.

Do you have any questions when it comes to investing with a small budget? What other tips would you add to this list?

Article written by Neiko Johnson
Neiko is a personal finance expert and Co-founder of Secret to Finance. Along with his wife Alexis, they learned how to get out of debt and pay off $360,000 in 36 months.

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