How to Start Investing on a Shoestring Budget

Dec 18, 2014 9:20:59 AM

When you’re just starting out, saving and growing your wealth can seem like an insurmountable challenge. But no matter what your currently monthly income, there are always options when it comes to building up your savings and putting your hard-earned money to work. Start early, keep costs down, and you will be well on your way to ensuring a comfortable retirement lifestyle.

Read on for some simple tips to get you started on the right financial footing.

Save a Little Every Paycheck

The first step to any savings program is to start saving a bit of each paycheck. Your first priority is to establish an emergency fund. By socking away a little of each paycheck, you can start building a nest egg that can be used for an emergency, or put toward a down payment or larger investments. I suggest you have 3 to 6 months of salary set aside. When opening a savings or money market account, be sure to shop around to determine which financial institutions can offer you the best interest rates. Unfortunately, in today’s interest rate environment, it won’t be a lot. Credit unions and online banks generally have some of the best rates.

Take Advantage of your Company’s 401(k) Plan to Begin Funding Your Retirement

A 401(k) plan is a key component to help you fund a secure retirement. It’s best to start saving early on in your career. Most industry experts agree you should save between 10% and 15% of your salary in order to adequately fund your retirement. Most companies offer a 401(k) plan for their employees, so be sure to speak with your human resources department to see what your options are.

A recent trend is for your company to automatically enroll you in the 401(k) plan at a pre-determined percentage, usually around 3% of your salary. That may be a decent place to start, but saving a mere 3% will not get you toward your goals. Increase your contributions to at least 10% as quickly as possible. And because the contributions are not taxed, there won’t be a huge hit to your take-home pay.

Contributions and Time Are Key

The best advice for building your retirement is to invest early and at a meaningful rate. Success is determined more by the amount you save and the time your savings have to grow rather than what investments you make. The earlier you start, the more likely you will have a solid foothold on your path to retirement.

There’s an old saying, the best time to plant tree was 20 years ago. The next best time is now. The same goes for saving for retirement.