It's easier than ever to start investing with a few dollars. But if you hope to reach your long-term goals quickly, it helps if you can invest more than $5 or $10 here and there. You might look at your bank account and think, “I can't spare any more cash for investing,” but you'd be surprised at how much money you're able to dig up if you're willing to get creative. Here are four places you might be able to find some extra money to invest.
1. Paying off debt
Debt, particularly high-interest debt, eats into your budget and limits how much cash you have left over to invest. Paying this off can free up even hundreds of dollars each month, which you can invest for your future.
If you have credit card debt, you can use a balance transfer card to pay it off. This temporarily halts the growth of your balance so all your payments go toward the principal. But if you fail to pay off the full balance before the introductory 0% APR period is up, the remaining balance will start accruing interest again.
A personal loan is another option. This gives you a predictable monthly payment. But the interest rates are somewhat high, to account for the increased risk since these loans don't have collateral — something the lender can take from you and sell if you fail to pay back what you owe.
Don't worry about debts with low interest rates, like mortgages. You can pay these off early if you'd like, but there's no harm in just making your regular monthly payment and investing at the same time. There's a good chance you earn more by investing than you're losing by paying interest on these loans, so working on both goals simultaneously is a smart choice for most people.
2. Your 401(k) match
Some employers offer a matching contribution to employees who put some of their own money into their 401(k). You should definitely do this, unless you need your entire paycheck to cover your living expenses. It can give you thousands of dollars more per year to invest for retirement, and over time, that could turn into tens of thousands of dollars — or even hundreds of thousands.
Talk to your company's HR department if you're unsure whether your company offers a match or what you have to do to claim it. Then, do your best to contribute at least enough to your 401(k) every year to get the full match.
Watch out for the vesting schedule. This determines when you're allowed to keep the full share of your employer match if you leave the job. It's not a concern if you've been with your company for decades. But if you've only been there a couple of years, you could forfeit some of your retirement funds by quitting too soon.
Certain stocks pay dividends to their shareholders, usually quarterly. Dividends are excess earnings that companies pass along to investors when they're doing well. The amount you'll receive depends on the company, its recent performance, and how many shares you own.
Reinvesting these dividends can help you grow your savings more quickly. Many brokers allow you to automatically reinvest your dividends so you don't have to do this manually. But you still have the option to have your dividends deposited in your account if you don't want to reinvest all of them.
4. Side hustles
Starting a side hustle gives you more income you can use for just about anything, including investing. There are virtually endless ways to make money these days, so play to your interests and talents. You could drive for a ridesharing company, help businesses build websites, or create and sell your own handmade goods.
Just don't forget about taxes. Side hustles usually don't have steady paychecks the government can withhold taxes from. So you must remember to set aside money for taxes yourself and pay it to the government quarterly, or you could face a surprise bill come tax time. Use this worksheet to estimate what you might owe.
One way around taxes is to invest your side-hustle income in tax-deferred retirement accounts, like traditional IRAs. Contributions to these accounts reduce your taxable income for the year, so the government won't count it when calculating how much you owe. But you'll have to pay taxes on your withdrawals in retirement.
Which type of account you pick, though, depends on your financial situation. If you believe you're earning less than or about the same amount as you'll spend annually in retirement, a Roth account may make more sense. You don't get a tax break on these contributions, but retirement withdrawals are tax-free. Or you may prefer a taxable brokerage account. These don't offer the same tax breaks, but you can withdraw your funds penalty-free at any time, unlike retirement accounts.
Can you think of any more?
We've looked at four possible ways to find more money to invest, but it's far from an exhaustive list. Take some time to brainstorm a few more possibilities and then put your ideas into practice. Do this activity at least once per year to see if you can come up with more money to grow your nest egg. You might be surprised at how quickly you reach your savings goals.
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