How do I invest if I don’t have much extra money?
Being in college, it is sometimes really hard to have enough money to live, let alone extra money to invest! However, because of interest rates, it is obviously in your best interest to start investing now. Most of us don’t have consistent salaries while we’re in college, so how do we consistently invest money?
The answer is to simply do your best. It might be impossible to save a thousand dollars a month, but if you can scrounge up 100 bucks or so each month, you will be able to get your investments seeded, so that when you actually do have a salary, it will be extremely easy to fund it and increase your investments. However, if you only have a little bit of money that you can afford to save right now, here is what I would do:
1. Check your savings – If you can find $3,000 (ask your parents?), you will be able to open up an IRA and fund it pretty well for its first year. Although it might seem like a lot of money to come up with, don’t forget that $3,000 now will be worth over $350,000 in 40 years, thanks to compound interest.
2. If you are close to having $3,000, save your money for a few months in a high-interest savings account. Once you get enough money, you will be able to open up the IRA.
3. If you won’t be able to raise the minimum amount required, open an IRA at an account with low minimums. There are many funds to choose from with low minimums.
4. Alternatively, invest in a non-IRA account until you’ve saved enough to open up an IRA with the minimum investment. For example, you can make some P2P loans on Lending Club with as little as $25 per loan and then deposit the proceeds in your savings account.
Once you have saved up enough, open up your IRA. Now, you have to fund it.
5. Figure out how much you will have to invest each month. Err on the side of caution here — how much will you definitely have?
6. Set up an automatic investment – Set your account to automatically take the money from your bank account and deposit it in your fund. By doing this, you will be paying yourself without even seeing the money, removing your own grubby hands from the savings equation. Your fund will have information on how to set up automatic investments.
Once you’ve followed these steps, you’ll have your account set up! That’s all there is to it. Pretty simple, huh?
Thursday, September 6th, 2007 at 2:28 pm