Am I Too Broke to Invest?

by Dana George | Updated July 21, 2021 - First published on Jan. 12, 2020

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Pair of hands holding an empty wallet open over a calculator and some credit cards on a desk.

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If you wait for the perfect moment to begin investing, you'll never do it. Today is the best time to begin building wealth.

If you wait for the perfect moment to begin investing, you'll never do it. Today is the best time to begin building wealth. 

If you think you don't have enough money to invest, consider this: Over half the population is finding ways to put some of their cash into the stock market.

As of April 2019, 55% of Americans had money invested in the stock market, according to a recent Gallup poll. Respondents included individual stocks, as well as stocks purchased as part of their retirement accounts and/or mutual funds.

While that's impressive, it's also striking is that 45% of Americans do not own any stock in any form. If you are one of them, it's time to ask yourself why. The chances are it's down to one of these three answers (or a combination thereof):

  • I don't know how to invest
  • I hate risks
  • I don't have enough money

If you're currently unemployed and worried about keeping a roof over your head or food on the table, it's safe to say that now is not the right time to invest. If, however, you have a job and your bills are getting paid, it's time for someone to call malarkey on your excuses for not investing. 

It doesn't have to be complicated. If your employer offers a 401(k) retirement plan, make pre-tax contributions. If they match any portion of your contribution, it's free money. Educate yourself on the stock market and know that you don't need to be a millionaire. You just need a plan.

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In short, once you have enough money socked away in your emergency fund -- ideally in a high interest savings account that's easy to access in the short term -- you're ready to invest for the long term. 

Address each excuse

Not to go too far down a psychological rabbit hole, but the idea of investing can bring up a host of scary feelings and being too broke is just one of them.

Afraid you don't know how to invest? 

You're already ahead of the game by reading this article, and there are plenty of books and other resources available if you want to learn more. But the best way to learn is to dive into the investment waters. You can ask questions and look for answers as you go. It's like learning to swim. You just gotta get in the water.

Think you don't have enough money to invest? 

That's likely because you think of investing as something "other people" do, people who make more money than you. That's just wrong. People like you invest their money. You know why? Because historically, stocks invested in the S&P 500 have averaged a return of 10%. Through good economic times and bad, those successful investors let their investments ride and reaped the benefits.

Afraid you'll lose money in the market? 

You will -- sometimes. And sometimes your investments will earn so much they will more than make up for losses. Start with a small amount of money, and keep it simple by looking at index funds or using a robo-advisor. 

It's natural to be worried about investing -- it's new and you don't fully understand the process. But like any fear, you have to face it to overcome it. And let's be honest here; there are few things scarier than getting into retirement with nothing put away for your golden years. Your future self will thank you for taking a risk now. 

Start small to end big

Can you think of ways you might scrape together an extra $10 a week? I don't know about you, but that's less than I pay for Netflix. It's less than a hotspot for my cell phone, less than two adult beverages with friends, and far less than the amount I spend on groceries that go bad and have to be tossed each week (my refrigerator is like death row for Brussel sprouts and kale). Look at your budget, work out where you can shave a few dollars each week, and assign that money to your investments.

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Start investing

Let's say you did decide to invest $10 each week. Although it doesn't sound like much, here's what would happen if you invested it in an IRA (or other investment account) drawing 8% annually:

$10 a week for this many years... ...would be worth
10 $7,787
15 $14,587
20 $24,580
25 $39,263

That $10 a week adds up to $13,000 over the course of 25 years. Assuming you earn at least 8% interest on your investment, that means you could earn an additional $26,263 on that money -- giving you $39,263. 

And it's all due to compound earnings. Compound earnings are a thing of beauty for this reason: You make an investment and it earns money, which is reinvested. As your investments grow, the earnings themselves start to earn more money. Compound interest is the reason banks get rich when we don't pay off our credit cards each month, and it's also the reason regular, everyday people can send their kids to college and retire in comfort. 

Remember though, the stock market goes through peaks and valleys. It's essential to view these investments as long term. That means not panicking when they're down and not cashing out when they're up. And don't invest money that you might need to access in the short term.

Just do it

I'm going to let you in on a little secret: You'll probably never feel like you have enough money to invest. There's always going to be somewhere else to use that money. You'll get a new job and buy a new car. You'll get a raise and send the kids (or dogs) to a better summer camp. If you wait until you feel wealthy, you will never invest.

So stick your toe in the investment water and get ready to swim. Once you realize how much your investments can help you meet your financial goals, you'll wonder why you ever waited. 

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