Think You Don't Earn Enough to Invest? Think Again

May 07, 2019

Simply put, the idea that you have to be wealthy to invest is a myth. Whether you’re making your dream salary or are still up-and-coming, you may discover that you actually do have enough income to get started.

Investing can help in building a solid financial future and growing wealth over time. Yet many people don’t invest at all. Do people think it’s too risky, or do they fear losing money? This is the case for some, but not the majority. Surprisingly, according to a recent survey, the biggest reason most Americans don’t invest is because they think they don’t earn enough money to do so.  

Cue the record scratch.

Simply put, the idea that you have to be wealthy to invest is a myth. Whether you’re making your dream salary or are still up-and-coming, you may discover that you actually do have enough income to get started with investing and that it can be a powerful tool to build your financial future. Here’s why. 

Why Consider Investing?

Investing can be a means to plan for your future and grow your money over time. It can also be a way to help you build enough money to reach a goal, like opening your own business or buying a vacation home, in a way that can be more powerful than a traditional savings account, which typically has lower annual returns than what you’d get from your investments. For example, at publication time, high-interest savings accounts had rates up to 2.5%, whereas investment in the S&P 500 Index shows a long-term average of approximately 7%.*  

Want to learn even more? To take a deep dive into all things investing, check out:

Additionally, thanks to technology, it’s never been easier to start investing. As COIN’s CEO Megan Schleck puts it, “you can now open an investment account in the time it takes to brew your morning coffee.” And these new investing tools don’t require a lot to get going. With just $50, for example, you’re ready to start investing. 

Here at COIN, we want to make investing more accessible to everyone, regardless of earnings or experience. So if you’re earning an income and are interested in investing, you may already be well equipped to get started. 

The Power of Time and Your Investments

You may not have a lot of money. With investing, that’s OK! When it comes to building your financial future, the amount of time you invest may be more impactful than the amount of money you deposit into your investments. In fact, if you wait until you’re earning a high income to start investing, you’re potentially missing out on time in the market where the value of your money could have grown through investing.

In fact, time in the market is so powerful that starting early on with a small amount of money may get you more in the long run than if you waited until you’re earning a high income later. Let’s look at the numbers to see what time in the market can do.

Picture two new investors, Jane and Lee, who are both 20 years old and about to graduate college. They both get entry-level jobs with modest salaries. Jane decides to prioritize investing right away, and plans to invest an initial $1,000 deposit and then invest $1,000 at the beginning of each year. Just to show the power of time in terms of her investments, let’s say she stops investing when she turns 30.

Lee decides to wait until he’s earning a more comfortable income before investing, so he gets started when he’s 30. Like Jane, he starts with a $1,000 deposit and invests $1,000 a year. He then invests this same amount for the next 40 years.

Here’s what could happen next:

 RATES   Investment  7%
 Name   Initial Deposit   Recurring Deposit   Start Yr   End Yr 
 Jane  $1,000  $1,000  20  30
 Lee  $1,000  $1,000  30  70
 End of Year Balances
 AGES  Jane  Lee
 20  $1,070   $ -  
 30  $16,888   $1,070 
 40  $33,222   $16,888 
 50  $65,353  $48,006 
 60  $128,559   $109,218 
 70  $252,895   $229,632 

Over the years, Jane invested $11,000, and Lee invested $41,000. But because of that head start in the market, when they turn 70 years old, Jane has approximately $23,000 more than Lee!*

Let’s now go one step further and say Jane continues to invest the same amount and at the same pace as Lee.

 RATES   Investment  7%
 Name   Initial Deposit   Recurring Deposit   Start Yr   End Yr 
 Jane  $1,000  $1,000  20  70
 Lee  $1,000  $1,000  30  70
 End of Year Balances
 AGES  Jane  Lee
 20  $1,070  $ - 
 30  $16,888  $1,070
 40  $48,006  $16,888
 50  $109,218  $48,006
 60  $229,632  $109,218
 70  $466,505  $229,632

In this scenario, Jane invested just $11,000 more than Lee over the years, but with that 11-year head start, by the time they’re 70, Jane has a whopping $236,000 more than Lee.*

Remember, Jane didn’t start off wealthy. But with small and steady steps, she was able to build a nest egg. And that’s the beauty of investing – there’s no secret formula to growing your investments. It’s simply a practice that can reward dedication, commitment, and patience.

So with Jane in mind, let’s think about what you’re able to invest, and how even small amounts invested now can set you up for success later.

Make Room for Investing in Your Budget

Not sure how much you can invest? Take a good look at your budget. How much take-home money do you have each month? From that amount, figure out just how much you can put into your investments. It doesn’t have to be a lot; the point is just to get started.

Depending on what you’re working with, you may want to get creative: Could you skip a few nights dining out, and use what you would spend at restaurants toward investing instead? Or, think about ways to bring in extra money, rather than cutting back. Could you take on a side hustle or extra work, and put those additional earnings toward your investments? Remember that a little can go a long way.

Case in point: Let’s say you invest just $10 a month, or $120 a year, for the next five years. With your ongoing deposits and an estimated 7% return, you could potentially have $720!* That’s $120 more than if you were to just put that $10 aside over the same amount of time.

Repeat after us: You don’t need to be wealthy to invest. Aim to invest the amount that makes sense for you and stick with it.

Take the Long View

Remember the tortoise and the hare fable, where the takeaway was “slow and steady wins the race”? That’s a good way to think about investing, too. When you decide to start investing, you’re taking the steps toward financial freedom and the ability to pursue the life you want. Putting what you can afford to invest into the stock market and leaving it alone over the years can be a slow and steady way to build your financial future, regardless of your earnings.

In fact, let’s go back to our $10 a month investor. If this person started investing at age 25 and kept investing $120 a year for the next 40 years, they could have $26,401* at age 65. Take a look:

 RATES   Investment  7%
   Savings  2%
 Name   Initial Deposit   Recurring Deposit   Start Yr   End Yr 
 Jane  $10  $10  1  40
 End of Year Balances
 YEAR   Investing  Savings
 1  $125  $121
 2  $258  $245
 3  $402  $371
 4  $555  $500
 40  $26,401  $7,357

If just $10 a month can grow that much over time, think about the possibilities for your own earnings and contributions over the years to come.*

So, if you’re considering investing but don’t think you earn enough, you may be telling yourself a story that, frankly, just isn’t true. With investing, it’s all about working with what you have, taking that first step, and then staying committed to your long-term goals. Know that as you continue to make deposits into your investment account, even small ones have the potential to grow. 

*Based on the 6.99% average annual price return of the S&P 500 Index during the period 1990 to 2018.