How To Invest On A Low Income – 5 Key Ways!

Many of us live paycheque to paycheque. Some try to stash our cash inside a savings account and dip into it like a boiled egg.

Others invest their money, and usually, those are the ones that have one less thing to worry about in their old age. Investing small amounts can have a huge difference and we’ll show you why.

Money doesn’t buy you happiness, but it pays for the journey.

You can invest on a low income in the UK by starting small and keeping costs low.

Use a commission-free or low-entry trading platform so fees do not eat your returns. Low-cost index funds and ETFs let you invest in hundreds of companies at once, and robo-advisors handle it for you if you prefer hands-off. Drip-feeding small, regular amounts matters more than the size of each contribution. Keep money you cannot afford to risk in a high-yield savings account.

How to invest on a low income?

Low income investing isn’t just a dream it’s totally possible. I often hear people say I don’t earn enough to invest. Think again, my friends. You can invest for as little as £1 these days.

One of the most incredible things I have ever done for myself was to learn the best places to invest my money.

When I started, I was paying what now seems like ridiculous fees on trades, but fortunately for you, there are now hundreds of places you can invest for less than a pint of milk!

We’re not known for investing in the UK, and most don’t ever learn how to trade or invest in stocks. The people who tend to do well are long-term investors who put the time in and invest for five years or more.

So, how do I do it?

Well, technology.

The rise of digital investment firms, pension providers and banking has given the little guys like us a chance. These new investment firms are often super easy to sign up for and, in some cases, do all the hard work for you.

Sounds dreamy right? Well, it is!

Listen To Our Latest Podcast Episode

Join us with Emma Young, school teacher and Founder of the investing channel InvestEm.

We discuss how Emma got over her initial fears of investing, starting with small amounts and building up her confidence over time.

It just goes to show you that anything is possible!

Get the full episode or access the entire back catalogue of The Money Gains Podcast episodes.

Investing For Low Income Earners – The Start

Before you invest your money, though, we encourage you to have done these three things:

1. Pay off any high-interest debt like credit cards, overdrafts and loans – do this first, or you’ll be forever paying out money in interest
2. Create a comprehensive budget and stick to it for at least three months
3. Spend less than you earn – you’ll never be financially stable until you cut out spending on stuff you don’t need.

Right, I know you want to make some money so let’s get to it.

Read nextRule of 25 for Retirement: The Simple Calculation That Tells You Exactly How Much You Need

How To Invest With Little Money – The Next Step!

Investing with a small amount of money can be a smart way to build wealth over time, even if you’re starting with just a few pounds.

Here’s how you can get started in the UK:

1. Budget for Investing: Even a small monthly sum, such as £25, can be a good start. Adjust your budget to set aside a consistent amount for investing.
2. Open a Stocks & Shares ISA: Use this tax-efficient account to invest in a diversified mix of funds with low fees, protecting your returns from tax up to a certain amount each year.
3. Choose Low-Cost Index Funds or ETFs: These funds provide diversification and have lower fees, which is important for not eroding small investments over time.
4. Use Micro-Investing Apps: Consider apps that round up your change from everyday transactions and invest it automatically.
5. Set up Regular Contributions: Automate your investments to take advantage of pound-cost averaging, which involves regularly buying a fixed amount of a particular investment.
6. Reinvest Dividends: Opt to have any dividends automatically reinvested to compound growth, maximizing the returns on your investment over time.

Starting small doesn’t mean thinking small, so approach your investments with a long-term perspective and patience.

Remember, the key to building wealth is consistency and the willingness to keep learning and adapting your strategy as you go along.

Parting with your hard-earned cash can be daunting especially when you’re just about getting by on what you earn.

1. Are low-commission trading platforms worth it?

The rise in digital investment firms means that anyone can now invest from the comfort of their own homes with a smartphone.

These new-age investment firms often have shallow barriers to entry, with companies like eToro and FreeTrade now offering commission-free trading.

Many other firms have dropped their commission to attract new clients, and it’s an opportunity for folks like us to get in there!

Some established brokers still charge a fee every time you buy or sell, and on a small amount like £100 even a few pounds is a big slice. No thanks!

Commission-free trading allows individuals with all types of budgets to get started. Essentially these platforms now cater to investment for low income earners by letting people start with £1 in some cases.

Retail investors are now springing up from everywhere, and of course, with the cost of living soaring, we want to maximise every penny we can.

Commission-free trading means you could be putting small amounts away and building your net worth over time without paying high fees.

We encourage you to at least learn the basics before you begin investing.

Parting with your hard-earned cash can be daunting especially when you’re just about getting by on what you earn.

2. Why you should consider robo-advisors?

If you can’t be bothered to learn about the stock market, Robo-advisors are an excellent investment method.

Robo-advisors landed on the UK scene over a decade ago. However, they have become a place for inexperienced investors to dip their toes in the markets relatively quickly.

They work by asking you a series of questions to establish your risk tolerance.

Once completed, the robo-advisor will automatically invest your funds into a ready-made portfolio based on your choices.

The key to this style of investing is in the name. These accounts are not managed by humans, meaning your entry costs are often lower.

Most robo-advisors charge somewhere around 0.45% to 0.75% a year on smaller pots, plus fund costs, so on £100 you’d pay roughly 45p to 75p a year. Not bad!

Some great options are available on the UK market, such as Wealthify, Nutmeg, and Moneyfarm. They all have different products available that are unique to each investor.

For those looking to test out robo-advisors, Wealthify’s ISA needs £1,000 to start, then you can add from £25.

Nutmeg (now J.P. Morgan Personal Investing) and Moneyfarm offer a more comprehensive suite of products but do need a £500 minimum investment to get started. Wealthify charges 0.6% a year plus fund costs, Nutmeg charges 0.45% to 0.75% depending on the portfolio, and Moneyfarm charges 0.45% plus a 0.25% platform fee on smaller pots.

Depending on your amount, it might be worth doing a little basic maths before deciding where to invest.

3. Buy Index Trackers or ETFs

My favourite and the most widely used products on the market are Index Funds and ETFs.

Index funds match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500) or FTSE 100.

These funds will buy and sell their stocks to match the company’s performance in the index or list.

For example, a global index fund such as a FTSE All-World tracker holds thousands of companies across dozens of countries. As companies grow or shrink, the index changes and the fund follows it automatically.

I like index funds because you hold a slice of the whole market rather than a few hand-picked companies.

Markets have tended to rise over the long term, but they fall too, sometimes for years, so growth isn’t guaranteed.

Low-cost index funds have also tended to beat most actively managed funds over the long run once fees are taken off: S&P’s SPIVA scorecards regularly find most active funds fall behind their benchmark over ten years or more. Past performance isn’t a guide to the future.

ETFs (exchange traded funds) are funds you buy and sell on the stock market like a share. Most simply track an index, but some are actively managed by a fund manager.

They can differ in size and also focus on a specific country, continent or sector, such as electric vehicles, technology or banks.

There are 1000s of ETFs available on the market, but some leaders include Vanguard, Blackrock, ARK and Fidelity.

The great thing about ETFs is they cater for a person’s investment type and risk tolerance. For example, if you want to focus on companies within a sector such as green energy, you can be.

By investing in an Index Fund or ETF, you become diversified. You’re spreading your risk by holding a wide range of stocks.

Building a well-diversified portfolio is key to long-term success, and it protects you against downturns in the market as often; not all your stocks will underperform at the same time.

4. Why should I consider a high-yielding savings account?

Although many like constant access to their money, high-yielding savings accounts like Cash ISAs can be outstanding if you don’t mind tying your money up for a few years.

The interest rates of regular day-to-day savings accounts don’t give you much back. When you factor in inflation, you’re often losing money.

High-yielding savings accounts often provide you with a much higher interest rate than standard ones.

It’s essential to do your research before opening one of these accounts. Make sure you don’t need the money for anything important.

We suggest opening one of these accounts if you already have an emergency fund. An emergency fund is usually around 3-6 months in wages placed somewhere like regular savings accounts that you can easily access.

Once you have this set aside, you can worry about adding to a high-yielding savings account.

5. Use a drip-feed approach

A drip-feed approach means adding over a long period, and you have a bucket full as you put small amounts together over time.

One of the misconceptions is you need lump sums to get started. You benefit from buying at different price points by investing small amounts over a more extended period.

This strategy is pound cost averaging, which smooths out the price you pay over time so you don’t put everything in at a market high.

Those who take a more protracted investment approach will also benefit from compound interest over time.

Sammie’s Top Tip

Have a percentage split ready to go when you receive unexpected money.

Small investments that make money follow the same principles as bigger investments. It’s only the contribution that changes.

For example, a relative gifts you some cash or you receive an unexpected work bonus you know precisely how you’re splitting it up before you even get it.

Planning ahead like this is what will get you financial freedom.

Then what?

With this money you’ve received, split it three ways. Spend a third (you deserve it), save a third and invest a third.

You should also do something similar with your wages each month. We call this the ‘live a little‘ strategy where you split your monthly wages like this…

1. 40% on your non-negotiables such as rent, mortgage, council tax, water, etc.
2. 30% to live a little. This means what it’s meant to and could be a Netflix subscription, a pint down the pub with your mates, a new t-shirt or your favourite magazines.
3. 30% into savings and investments

This strategy aims to allow you the daily comforts that keep us going throughout our lives. There’s no point saying to someone you must cut out everything you enjoy and invest it all because they’ll end up hating investing.

Investing is supposed to be fun.

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For more on how to improve your finances, check out our investing for beginners page. Here you can learn the stock market basics and all you’ll need to become a successful investor.

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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.