How to invest with just a little money is a common question for people investing on a small income or trying to balance investing vs paying down debt. Just because you dont have a lot of money doesnt mean you cant invest, however it does require you to be smarter in your investment strategy. So today Im going to write about investing on a budget. There are five core concepts Ill cover and if you follow them you should be able to invest on just about any budget.

Core Concept #1 Emergency Fund

Im not the first person to discuss this conceptits actually a part of the debt snowball idea created by Dave Ramsey. But its still a core value in being able to invest on a budget. Before you can invest, you need to have sufficient funds in savings (in case of an emergency) so that you wont have to tap into your investments the first time your car breaks down or you need a new roof for your house. This is particularly important in terms of tax affecting your investments.

Core Concept #2 Researching Investment Minimums

If youre investing on a budget, you might want to go with one of the large no-load mutual fund companies such as Vanguard, T Rowe Price, or Fidelity. Youll probably be upset to learn that most of these companies require a minimum investment of several thousand before you can even begin investing. Knowing this up front will help you make a decision as to when and where to invest. In the meantime, keep setting money aside in a a pre-investment account youll get there sooner then you think. Something else to consider is that the required minimums are often lower if youre opening a retirement account like an IRA.

There are also companies like ShareBuilder and Betterment that will let you invest just a small amount each month. The two work a little differently, ShareBuilder charges a $4 fee for each investment you buy and Betterment charges 0.9% of your investment annually. Heres a ShareBuilder review and you can look for a Betterment review on this site later this month.

Core Concept #3 Pay Yourself First

- If you dont pay yourself first, you wont pay yourself at all. Period. Again, this isnt a concept I created (Im not even sure who did), but it works. A good number is to try and set aside at least $50.00 each month for your investments. If you cant afford that then youll have to do some digging to come up with the money.

Is your cable $50.00 per month? Maybe you could downgrade to save $20 a month and then youre almost halfway to $50. When youre on a budget you have to make trade-offs you have to decide if youre willing to make cuts to start an investment portfolio or retirement fund. Its up to you to decide if investing is feasible or not with some juggling, hopefully youll find that its possible. If not, the focus has to be on increasing your income (which of course is always easier said than done).

Core Concept #4 Diversify

Ive been over this concept before in prior posts on this site, but its just so important when youre investing on a budget. When youre investing on a budget, you likely wont have the funds to survive one big investment mistake. Youre only chance to get the exposure you need, across a wide cross-section and variety of sectors and investments is to diversify.

As I mentioned ealier, I think the best way to accomplish this task is to invest in a low cost brokerage firm, my favorite is Vanguard. When you only have a little to invest its even more important to keep your costs/expenses as low as possible. A diversified mutual fund with a brokerage house will help you achieve both these goals with little hassle.

Core Concept #5 Get Started as Soon as Possible

Since you wont have (at least for the foreseeable future) the ability to fully fund most of your investments, youll have to obtain your investment and savings value through time rather than volume. The sooner you invest, the sooner you can start the compounding interest that you will need to carry you through to achieve your individual investing goals.

These are, in my opinion, the five core principles of investing on a budget. After you have mastered these concepts, you should be able to start investing now or in the near futureeven on a tight budget. Ive found that theres always a place I can cut money or a way to earn some extra cash. I understand too that some budgets have more flexibility than others.

As always, its important to meet with an appropriate expert prior to making any such important decisions. Best of luck as you embark on investing on a budget. With time, you may realize you dont even miss the extra money you are investing rather than spending. That sacrifice now should pay dividends, both financially and in your life, for years to come.

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