How to start investing when you are broke or have low income.


Everyone has a different approach to handle personal finances.
Some were lucky by having parents that taught them some basic money principles.
Others must figure it out on their own and maybe even struggle a little bit while finding the approach that works for them.
Either way, there are two things you need to know:
1. You are already an adult and handling your finances must become part of your priorities. Cheers to you for reading this article.
2. Keep in mind that it takes time, but it is worth it.

So, how to start investing when you are broke, in debt or have very low income?

It is simple, but it is not easy.
The most important thing is to set up milestones and start. You won't get anything done if you push goals for "when I have more money", besides, you would be losing time and the benefits of compound interest.

1. Get the basics.
The basic step is knowing where you are regarding your financial life.
Do you have debt? Do you know how much? How much of your payments go to the principal, how much goes to interest? What is the interest rate of your loan?
What are your basic expenses per month? How much are you actually spending per month?
Do you have savings? How much interest rate are you getting from your savings?
Do you have an emergency fund?
Does your company offer a 401K? Do you contribute to your 401K? How much? Are you getting a match?
Once you have the answer to these questions at least you have a good idea of how your financial life really looks like.

2. Getting in financial shape.
Once you know where you stand, you can evaluate how close are you of your ideal financial life and get a better sense of direction.
If you discover that you are in horrible financial shape, do not panic, act and pat yourself on the back for at least being committed to start.
Decrease the negative self-talk.
If you are in a better situation than you expected, congrats, it is time to push harder to improve even more.
Either way, getting in shape means developing a plan.

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 a) Do you have a budget for each month?
This is the first and most basic thing to develop, especially for many people living paycheck to paycheck (I used to be in that group), or the ones borrowing money from their credit card to cover the expenses until the next paycheck (I used to be in that group too).
Getting a budget and tracking your expenses will tell you where your money is really going.
You might think you are not having frivolous purchases, or at least not many, but tracking your expenses and having a budget will reveal the truth.

b) Do you have an emergency fund? If yes, go to next point. If not, keep reading.
Having an emergency fund is (after having a budget) the most important thing in your financial life.
Having an emergency fund means that you won't get in debt when the unexpected happens, and believe me, it is going to happen.
Besides, it will give you a boost of confidence, knowing that you worked your ass off and were able to build an emergency fund that you feel proud of.
Knowing, for example, that if you lose your job, at least you will have a couple of months to get another one.
That is peace. That is an amazing feeling.
It is usually recommended 3 to 6 months of expenses for an emergency fund.
I know on first hand that it can be challenging; when I was making 20K a year that seemed so far and impossible. It is not impossible if you have a plan and stick to it.
You can start setting milestones to your goal. A good milestone is Dave Ramsey baby step number one. 1000 emergency fund. It will boost your confidence, and after having the first 1000 you just need to keep it going. Sooner than later you will have 3, 4 or 6 months of expenses in your emergency fund.

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c) Do you have debt? If not, skip to next point.
There are many kinds of debt and some of them can screw your future, while others can allow you to build wealth.
Bad debt: Consumer debt or any high interest debt is the worst debt you can hold. If you have a high interest debt, try to refinance your balance with an institution that offers you a better and lower rate.
This is especially true for credit cards. There are many offers to transfer a balance with 0% interest for 12 months. This is the best approach.
Student loans: Sadly, a very typical kind of debt. Almost inevitable for many.
First thing to check is the interest rate you are paying. If you have separate loans for your student debt, try consolidating the loans by refinancing with a different institution. Especially if you are going to get a better rate. Try to get a rate of 5% or less.
Car loans: Too late to tell you that a car is a depreciating asset. Been there, done that. It is ok. Try to add more money than you should into your payments, to hit your principal and get rid of your debt faster. Try to keep your car in good shape and seriously evaluate buying one for cash when you need to change it in the future.
Sometimes is not great to have a bad looking car, but most of the times it is a lot better for your financial life and totally worth it.

Other loans: Develop a plan to pay your loans a bit faster. Throwing extra money to your loan really helps.
Refinance to a lower rate is the option to follow.

Personal Finance is sometimes like working out, if you are getting in shape, you just need to keep the consistency, keep it going and checking for small mistakes that can derail you from your goal.

3. Micro-investing: We are lucky to live in a time when you can invest even your spare change.
Many people have in their mind that they must wait until having thousands of dollars to invest, after the emergency fund (although there are good reasons for this), after the down payment for a house, after, after, after.
Meanwhile, you are losing time and the benefits of compound interest that come with time, you are also losing the most important and valuable thing you can create: You are losing the opportunity to develop a habit and to learn as you go.
Then, most people (if they are lucky enough to get to that point, without having unexpected situations that delay their plans), after they got the emergency fund, the down payment, they just go to a financial advisor (which you have to pick very well, because many of them are just sales people) and completely disconnect of their money, expecting high returns and also paying high fees.
When you start early (or at least start) you can learn, grow and develop habits.
Habits will allow you to better handle money in the future, when you have a better job, when you get more income, and chances are that you will.


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Disclaimer: There is a reason why an emergency fund is important first.
You want to invest for the long term, you don't really want to invest aiming to pull your money out in less than a year. Your investments are not liquid, they are not your emergency fund.
If the unexpected happens and you don't have an emergency fund set up, you would have to pull your investments out in a rainy day and if it the market is down at that time, you would have to eat some loses. (Been there, done that.)

However, it is possible to build your emergency fund while microinvesting.
Focusing more in setting up your emergency fund but getting into the habit of microinvesting and learning.
How?
Let's say you can save 500 dollars a month. If you choose to save 460 for emergency fund and 40 bucks to micro-invest you are already creating something.
You are:
-Putting a plan to work
-Developing habits
-Learning to focus in achieving milestones
-Working on your will power
-Actually building your emergency fund AND microinvesting.

How to microinvest?
There are many ways to microinvest.
Some platforms even allow you to microinvest your spare change. You can start with pennies, so there is no excuse.

Some platforms (0- to 500 dollars minimum):

1. Acorns: You can microinvest your spare change by rounding your purchases. Taking cents or a dollar from every purchase is not going to diminish your ability to save and create your emergency fund if you don't have one, so it is good to start.

2. Stash: You can start microinvesting with 5 dollars, they will charge you 1 dollar a month for using the platform. It is worth it. When I was making about 40K a year I was able to accumulate 1k in stash in just a couple of months without even noticing.
Most platforms have an automatic deposit option. So, you can add money to your mini portfolio 10$, 40$ or as much as you want weekly, bi-weekly or monthly.
In stash you can buy ETF's, an ETF is basically an investment fund that holds specific assets.
For example, an ETF of technology holds stocks of technology companies like fb, microsoft, etc.
When you buy an ETF you are buying pieces of the companies that the ETF holds.
This gives you more diversification than buying a single stock, where the risk will increase.



3. Robinhood: In Robinhood you can buy single stocks and indexes. I just recommend it if you are willing to learn, read, and get involved; which you should, when handling or doing any kind of financial decision.
It also has the possibility to trade options. No fees.

4. Betterment / Wealthfront: These platforms are basically robo-advisors, they invest your money in stocks after asking you basic questions like your level of risk and when you would need the money.
Betterment has an option in general investing to allocate 90% into bonds and 10% on stocks (it used to be the smart saver), the earnings on the money invested in bonds is generally exempt from local taxes. Or you can save your emergency fund using their new savings account option which offers a 2.69% interest rate.
Wealthfront also has a saving option and they are currently (July/2019) offering 2.57% interest rate.
These two platforms are amazing because visually they provide you with a whole picture of your financial life, plus some forecasts.
In Betterment you can set up goals to put money into different categories; for example, to fund a new business, taking care for aging parents, emergency fund, etc. This is an amazing way to keep your financial goals clear, organized and tidy.



5. Fundrise: It is a platform of real estate crowdfunding.
You can start with 500 dollars. It has offered returns between 8 and 12% in the past couple of years. I'm pleased with this platform and the results.
This is not liquid money. The money that you put in Fundrise is to not be used or taken in the next 5 years, they actually have a penalty for early withdrawal, if you take your money out before 5 years.

6. Your 401K: Consider adding extra money to your 401K. Money in your 401K, IRA, Roth is money with tax advantages. If you are considering investing just for retirement, this is the place you should go.
Maximizing your 401K is an excellent goal. Consider increasing your contributions between 8 and 15%.
That will allow you to take more advantage of compound interest and time.

7. Wealthsimple: No minimums and management fees of 0.5% if your account is less than 100k.

9. Fidelity:  You might consider having an additional portfolio in mutual funds and index funds besides your retirement portfolio.
Currently, Fidelity offers some mutual funds with ZERO expense ratio and zero minimum investment.
Important: Read the prospectus, it will help you to make a better investment decision. 

These are the fees from fidelity Website.



10. Groundfloor: In this platform you can invest your money through loans for real estate.
It offers different degree or categories for investments from A to G, A being less risky and G riskier.
Interest in your money is paid at maturity of the loan, which is normally 6 to 12 months. Interest rates are between 7 and 12%
Minimum investment is 10 dollars according to their website.

Investing - The next step (more than 500 minimums)

If you are already set up and in good financial shape, there are more ways to put your money to work.

Fidelity, Vanguard, Betterment are good places to keep working with, even if you are not a beginner, but there are some platforms that offer different investment vehicles.

1. Peer lending:  There are platforms like Lending club where you can invest your money in loan notes. Depending on the state you live you might need to be an accredited investor. Minimum investment 2000.

2. Cadre: Commercial real estate investment option for accredited investors. Minimum deals of 50k single deal or 10k with a commitment of 10 deals.

3. Masterworks: This is a platform to invest in art. You would own a little part of a masterpiece that it is supposed to get appreciation over time.
Minimum investment 1000.
  
Investments and knowledge.

One of the things that I love the most about micro investing is that you learn as you go and you build keystone habits to create wealth.
In James Clear words, "Tiny steps, remarkable results"
The experience is different when jumping from micro-investing to investing because you are going to be more knowledgeable and hopefully cautious.
There is a rule #1 in investing that goes: "Do not invest money that you can't afford to lose"
Almost anyone can afford to lose 5, 10 or 20 bucks, and if it happens that you lose, you will learn, and you will keep learning as you go.
You will get familiar with the terms, the different investment vehicles and even the taxation.
And when the moment comes, and you have 5k, 15k or 50k to invest, you will have more knowledge, and you will have the habits required to analyze an opportunity properly. You will have the confidence and the risk management skills. 

Key takeaways:

1. If you don't have money to invest, start by micro-investing.
2. Work to get the habits. Set up automatic deposits to microinvest, use the dollar cost average technique.
3. Read the information of your investments and learn. Read the prospectus.
4. Work in your risk management skills, when jumping from micro-investing to investing bigger amounts.
Do not invest money you can't afford to lose. Do not invest money without being properly informed and making your own research.
5. Do not trust blindly on financial advisors, many of them are salesman, many are awesome. Do your own research and when hiring a financial advisor think about it like you are hiring a person for a very important company (yourself).
6. Normally, long term investing provides the best results. Day trading might sound attractive (been there, done that) but long-term investment has for most of us the best cost-benefit results.
7. Update your portfolio. You don't have to look at it every day but stay informed. Update your portfolio also, as you get older and your life changes.

Good luck in your endeavors!

A useful book to get started: 
- The simple path to wealth



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