If you’re “broke” the idea of investing may be far from your mind. But then again, it may be this mindset that’s keeping you broke.

When it comes to how fast you’re able to build wealth, it’s all about your savings rate.

As Tony Robbins said in Money: Master The Game:

…the “machine” can’t start working until you make the most important financial decision of your life. The decision? What portion of your paycheck you get to keep. How much will you pay yourself—off the top, before you spend a single dollar on your day-to-day living expenses? How much of your paycheck can you (or, more importantly, will you) leave untouched, no matter what else is going on in your life?

So, why invest if you’re broke?

Because investing is a habit, as well as a key aspect of gaining control over your financial future

The earlier you start that habit — the easier it will be to continue and the more wealth you can build.

How to Invest With Little Money Even When You Are Broke

Once you have the necessities taken care of (food, shelter, clothing) — what exactly are you next priorities?

The question to ask yourself is:

What can I do today that will have the greatest long-term impact on my wealth?

Your goal is to look for the action that will have the greatest long-term benefits. For example, maybe “broke” to you means having a zero net-worth. You’re out of credit card debt but can’t climb above a zero net worth.

Broke for someone else may mean $10,000 in high-interest credit card debt and thousands more in overdue bills.

The goal is still the same — determine the best “investment” today.

What are your options?

Here are five investments to consider:

# 1 – Pay Off High Interest Debt

The average interest rate on credit card debt is above 15%. Compare this to the stock market which has earned about 10% a year.

That’s why if you have high interest debt, paying that debt down is a great investment.

While your account won’t grow — as an investment account SOMETIMES does — you will be saving money in interest payment.

The math is pretty simple.

Let’s say you pay $100 extra this month on your credit card bill, which has a 15% interest rate. Over the next year, you’ll save yourself $15 in interest. Which is the roughly equal to earning 15% on your money.

What about other types of loans? Auto loans or student debt may have a rate lower than 10%. Does it make sense then to invest or pay off debt in this situation? There’s two ways to think about it:

Pay Off Your Debt

  • Pros
    • Equal to a guaranteed, after-tax return on the debt you pay down
    • Can help build your credit score
  • Cons
    • Stock market may outperform
    • Delays investing and therefore delays years of compounding

Start Investing

  • Pros
    • Starts the habit of investing
    • Your investments will have more time to compound
    • If available, you get to take advantage of your employer match
  • Cons
    • Investing is not a guaranteed rate of return

Keep in mind, you can always do both. If you have $100 leftover at the end of the month, you can put $50 to debt and $50 in the market.

# 2 – Invest Up To Your Employer Match In Your 401(k)

It’s important not to forget the ultimate questions here:

What can I do today that will have the greatest long-term impact on my wealth?

If your employer matches your 401(k) contributions, investing up to that match is a tremendous investment. If you have high interest debt paid off, nowhere will you find as good of as a return.

Match programs generally work something like: Employer matches 50% of contributions up to 6%.

So, if you contribute 6%, you’re getting a guaranteed 50% return on your money every time you invest.

Your employer’s matching program will probably differ. Keep in mind, you may only have access to these funds after a certain amount of time (called vesting).

Nonetheless, if it’s available, you want to take a good hard look at your employer’s plan.

You can make a sound argument for taking advantage of matching before paying off high-interest debt.

Another tip — if you’re not sure how to pick the right funds in your 401(k), consider using Blooom.

Blooom is a 401(k) robo-advisor that can help you maximize the returns you’ll get in your 401(k).

It cost $10 a month to have Blooom manage your 401(k). However, as a reader of The Ways To Wealth, you’ll get your first month free and cancel at anytime.

You can then have Blooom pick the optimal mix of funds in your 401(k) for no-cost.

If you have a 401(k) Blooom also has a free analysis tool — which allows you to discover if you’ve selected the right funds already and uncover unnecessary hidden fees.


# 3 – Start A Roth IRA For As Little As $1

Another good option for beginner investors is a Roth IRA. A Roth IRA is a type of investment account, not an investment itself.

The primary benefit of a Roth IRA is you contribute after-tax dollars, invest that money, which then grows tax free.

One benefit of a Roth IRA are that you can withdraw contributions without penalty. For example, if you contribute $500 and that grows to $600. You can withdraw $500 without paying a early withdrawal penalty.

While it’s not always the best idea to withdraw, it is comforting knowing this option is available for those without a large emergency fund.

One problem for those without a lot of money is finding an investment brokerage with low minimums. For example, with Vanguard, an investment broker I use and recommend, their minimums start at $1,000.

If you don’t have $1,000, a great option is Betterment.

You can start investing in Betterment for as little as $1.

What’s nice is Betterment doesn’t have dozens of funds to pick. Instead, you pick your goals (for example, retirement, saving for a down payment, etc…) and Betterment selects an optimal portfolio for you.

Learn more about Betterment.

# 4 – Get Experience As An Individual Stock Investor

One thing I did when I was broke myself was to start investing in individual stocks. While I would often buy only a share or two, this was when I learned a lot about investing.

Ironically, it was actually some poor stock picks that turned me on to index investing (Thanks Yamana Gold and Banco Popular)!

Having money on the line motivated me to learn what it takes to become a great investor. It’s also a great way to learn about business and the market in general.

If there’s a company you believe in — buying a share or two in that company is a great way to get a taste of investing. I’ve always enjoyed doing this myself with 5% or so of my total net worth.

While there are A LOT of investment providers out there to invest in individual stocks, I really like Ally Invest. With Ally Invest, trades start at $4.95, which is about as low as it gets.

# 5 – Invest In Yourself

Remember the question:

What can I do today that will have the greatest long-term impact on my wealth?

Making a monetary investment is sure a smart move. But the best investment may be as simple as investing in yourself.

Warren Buffett, the greatest investor of all time, has said:

“Ultimately, there’s one investment that supersedes all others: Invest in yourself. Nobody can take away what you’ve got in yourself, and everybody has potential they haven’t used yet.”

This doesn’t have to mean going into debt. There are many ways to invest in yourself with little or no cost.

The investment can be as simple as a book or as even setting aside some time to learn a new skill.

Ultimately it’s your skills that’s going to get you from broke to where you want to go.

So, what can you learn today that will have the greatest impact on your wealth?


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