Founding father Benjamin Franklin’s image is on the $100 bill, the largest denomination of U.S. currency, because he knew a thing or two about money. He knew that even if you have little to invest, you can still build wealth by taking baby steps.
Franklin notably said, “Human felicity is produced not so much by great pieces of good fortune that seldom happen, as by little advantages that occur every day.”
Franklin’s wisdom couldn’t be more prescient given that only 36 percent of non-retired adults think that their retirement saving is on track, with one-quarter indicating they have no retirement savings or pension at all, according to a May 2019 Federal Reserve study.
So, what are these “little advantages” that you can start employing to become more financially secure? Let’s find out:
Pay yourself first
This investing theory caught fire after the 1926 publication of the now classic book, “The Richest Man in Babylon,” by George S. Clason.
His basic premise is that if everyone else gets a cut of your hard work, why wouldn’t you pay yourself first. He thought 10 percent was just compensation, so a penny out of every dime, a dollar out of every $10, $10 for every $100 you earn. If you adopt his me-first financial mindset for your constant labor, you’ll soon have money to invest.
Pay off your highest interest debt
Yes, this is an article about investing, but paying off a credit card with an interest rate of 20 percent or more is probably better than the return produced by most investments. So before looking to invest your first small sum of money, try to knock out a few of your double-digit interest-rate debts. Again, for a little inspiration you can turn to Franklin, who said, “Beware of little expenses, a small leak will sink a great ship.” Imagine what he would have to say about a big expense.
Stash your loose change in a cookie jar
Imagine if you put $10 of loose change into a jar each week. In a year, you would have more than $500. It’s old school, but you’ll literally see and feel the positive impact your plan is having every time you either peek into the jar or pick it up and feel its increasing weight. After all, “A penny saved is a penny earned,” Franklin told us. Just be sure to keep yours in a safe place.
Get a digital piggy bank
If you prefer a more high-tech savings and investing plan, there are several apps that round up your debit card and credit card purchases and invest the difference. For example, if you buy a coffee and a scone at breakfast for $4.75, the app will round up the purchase to $5 and invest the extra 25 cents into your account. Three such digital savings platforms are Acorns, Chime and Qapital.
Think about going “robo”*
A robo-advisor provides financial advice or investment management online with moderate to minimal human intervention. Typically, you will complete an online survey with questions about your age, investment goals and risk tolerance and then the robo-advisor will put together an optimal portfolio based on your answers. Many robo-advisors have no investment minimums, others may start at $100 or $500. They make their money by charging a management fee, but the fee is usually less than what you would pay at either a full-service or even a discount brokerage. There are now more than 100 robo advisors to choose from since their introduction about a decade ago.
Invest where you work*
If you think investing in your company’s 401(k) or other employer retirement plan is beyond your reach, check that attitude at the door. There’s a way to invest in an employer-sponsored retirement plan with amounts so small you won’t even notice them. If you invest just 1 percent of your salary, you probably won’t even miss a contribution that small.
Because the contributions you make (up to $25,000, if you’re 50 and over) are exempt from current federal income tax, they lower your taxable income for the year in which you make them. Also, the earnings on your investments accrue on a tax-deferred basis, which means the dividends and capital gains that accumulate in your account are not subject to tax until you begin your withdrawals.
If you find after the first year, you don’t really miss that 1 percent contribution, hike your contribution to 2 percent the second year, then to 3 percent the next year and so on.
Lend small amounts to others*
We’re not talking about lending $100 to your brother or Uncle Joe. We’re talking about peer-to-peer lending, which is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. You can invest as little as $25, so as an example, if you were to invest $100, you could lend $25 each to four different people. The online services typically offer ratings for each borrower to help you gauge the appropriate risk/return you find acceptable for your portfolio. While many of these services have produced double-digit returns, there is a risk of loss to your principal should one or more of your loans go into default. Also, there is no FDIC insurance protecting your investment.
Invest in real estate*
If you want to invest in real estate but don’t have the financial resources required for flipping houses or becoming a landlord, you may want to look at crowdfunding real estate sites. The online sites feature portfolios of real estate developments that you can invest in for as little as $500. Your returns will vary based on the project or projects you invest in. Real estate crowdfunding gives you the ability to decide exactly which properties you want to include as well as exclude from your real estate portfolio. And because of the minimum investment required, you may be able to invest in several real estate deals, leading to a more diversified portfolio with less risk exposure.
Even if seems like you don’t have a dollar to spare, you don’t have to wait to start investing. Indeed, there are now more no-cost or low-cost services to help you save and invest than ever before, requiring minimum entry points that fit both your budget and your desire to build financial security.
It’s important to remember that while no investment is without risk (see investment statement below*), not investing at all also involves risk because of the corrosive effects of inflation, which can erode the value of money over time.
To start securing your financial future, start seeking those “little advantages” you can implement now for a better financial course. The clock is ticking. As Franklin said, “You may delay but time will not.”
*All investments carry risk. The past performance of any investment is not necessarily indicative of future results. There is no guarantee that systems, indicators, or signals will result in profits or that they will not result in losses. All investors are advised to fully understand all risks associated with any kind of investing they choose to do.