Contrary to popular belief, you don’t have to be pulling in a six-figure income to start investing your money. In fact, with just one hundred dollars a month, you can begin your investment portfolio.
The earlier you learn how to invest money, the greater your compounding returns later in life. This makes investments at any level a smart idea.
While your option may be limited with a smaller budget, investing with small amounts of money per month is still completely viable!
In this article, we’ve compiled a list of investment accounts to help you invest $100 a month successfully.
First Things First: Pay Off Debt and Have an Emergency Funds
Before you start investing you need to create an emergency fund and pay off your credit card, student loan, and other debts.
An emergency fund is important to have before you start investing any money. Financial guru Dave Ramsey suggests having at least one thousand dollars saved for emergency situations. This covers unexpected expenses and can prevent you from going into more debt.
Additionally, you want to make sure you pay off any outstanding debt before investing. Interest rates on debts that you currently have can impact your profits in the long run. By paying off debt before investing your money you can save hundreds if not thousands of dollars.
How to Invest One Hundred Dollars a Month with Investment Accounts
There aren’t as many options for investment accounts when you have a limited budget but there are some low-risk options for those wanting to start. Some of these are a certificate of deposit, retirement investment account, and even a personal savings account.
Certificate of Deposit
A certificate of deposit represents one example of a low-risk investment account. This is a certificate issued by a bank that is given when someone commits to deposit a certain amount of time.
Banks give a fixed and higher interest-rate with certificates of deposit because they are low-risk to the bank. This means you’ll make more money over time as compared to a traditional savings account.
The only downside is that there is a penalty if you withdraw the funds before the set time period. So, if you need the money, it works against you.
Retirement Investment Accounts
Retirement investment accounts are some of the most beneficial investments to start with. They offer tax incentives and are a huge investment in your future. Depending on your income and preferences there are two retirement investment accounts to choose from: Traditional IRAs and Roth IRAs.
For Roth IRAs, there are income limits for eligibility. The income threshold depends on your tax filing status. If you are filing as single, you must make less than $137,000 of modified adjusted gross income in 2019. With a married filing jointly status, your modified adjusted gross income must not exceed $203,000.
While Roth IRA contributions aren’t tax deductible for the year, they are tax-free to withdraw.
Also, there is no age specification for when you have to make minimum withdrawals. This means that if you have enough income at seventy and a half years old, you can leave money in your Roth IRA to continually accumulate interest.
A Traditional IRA is different from Roth IRAs in a few ways. As opposed to Roth IRAs, there are no income limits and contributions are deductible for the year. However, you pay standard income tax when they are withdrawn.
You also have to make minimum withdrawals yearly starting at seventy and a half years old.
Personal Savings Account
A personal savings account is one of the easiest ways to start earning money passively. They are an account almost anyone can start when looking to begin investing.
There are usually two standard savings accounts to choose from standard savings accounts and money market accounts.
Standards savings accounts are best used when trying to create an emergency fund or a buffer for your budget. These are liquid assets that can be accessed at any time.
They usually come with a fixed interest rate that is dependent on the bank you open the account with. To make a significant profit, you have to keep the balance high for an extended period of time.
While there are usually no fees or waived fees for having an open savings account, you do get penalties for withdrawing money. There are a maximum amount of withdrawals each month and any withdrawals after the fact usually result in a small fee.
Money market accounts are very similar to standard savings accounts. However, if you plan on depositing a significant amount of money, initially or over time, money markets may provide a better profit.
Money market accounts have tiered interest rates depending on the amount of money in the account. The more money there is in the account, the higher the interest rate you can get.
However, there are usually higher minimum deposits to open an account.
A brokerage account is an account you can deposit money into which is then used to buy many different types of investments.
With a full-service brokerage account, you work with a broker who you have a personal relationship with. They can help you decide the best way to invest with your brokerage account.
They usually take a commission fee from your dividends, which reduces your profit. However, the chances of you making smart investments that provide a higher return of investment are much more likely.
Start Investing as Early as Possible
Smart investments are a part of a good financial plan. By choosing investment accounts wisely, you can tap into the potential of passive income.
Starting with an individual retirement account, a certificate of deposit, personal savings account, or a brokerage account can all be low-risk options to start your investment portfolio. As you start to increase your income and learn more about investments, you can start to take bigger risks with your investment accounts.
Located in Georgia and looking to open personal savings, individual retirement, or certificate of deposit account? Visit Signature Bank of Georgia today.