The point of investing is to use your money to generate extra money. But what happens when you don't have any money in the first place? We take a look at how to start investing when you're broke.
Take care of debt
Your first step should be to assess your debt situation. Take stock of your debts, particularly high interest debts such as credit cards, personal loans, and automotive loans. Interest rates on credit cards can run to above 20%. Returns on the share market have traditionally been lower than this. If you have high interest debts, eliminating them should be your first priority.
Know your budget
It's almost impossible to save when you don't know what you spend. If you don't have a budget, start one asap. Go back over your income and expenses for the past few months and enter them into a spreadsheet or budgeting app. Take stock of where and how your money flows. Determine how much room there is in your budget for investing and how you can increase this.
Increase your income
If you're broke and you want to invest, you'll need to either decrease your expenses or increase your income. Consider whether it's time to think about asking for a raise, or moving into a higher paying position. See whether you can turn a hobby into a side hustle to generate extra investment funds. Take on some additional hours or shifts if you can. Any extra income can be used to invest.
Start small
Whether you are paying off debts or amassing investment funds, every bit counts. Small amounts add up over time. Doing things like setting aside your spare change or rounding up electronic transactions to the nearest dollar, saving the difference, can add up faster than you think. Apps such as Raiz can automatically round up digital transactions and invest the difference on your account.
Go bigger
Once you have sufficient funds you can look to invest directly in shares or ETFs on the ASX. Most online brokerages have a minimum trading limit of $500 or so. Decide which securities you want to invest in. Many early stage investors choose index ETFs such as A200 or IOZ, or large cap stocks such as CSL Limited (ASX: CSL), Macquarie Group Ltd (ASX: MQG) and Woolworths Group Ltd (ASX: WOW) to invest in.
Foolish takeaway
Starting investing when you're broke can be done, if you really want to do it. By managing your income and expenses and starting small you can start investing quicker than you thought.
