How Much Money Do I Need to Get Started Investing?

How Much Money Do I Need to Get Started Investing

If one wants to get involved with the purchasing of high quality dividends in order to achieve passive income and long term wealth, they often ask how much money do I need to get started investing? Now before we even start to answer that question, let’s go ahead and get a few of the prerequisites out of the way.

The first thing you need to do is get a good grasp of your own financials. This includes making a budget on paper for yourself in order to see where your money is coming and going. This may sound like common sense, and in a way it is, but you’ll be shocked by the sheer number of people who have no idea how much money they spend in bills/expenses every month.

I also recommend creating an emergency savings account before even starting any type of investment. Its purpose is to make sure you are able to meet any spur of the moment expenses that life throws your way. Throwing big expenses on high interest credit cards isn’t going to help you any. This could be anything from car repair, medical expenses or even losing your job. If you’re looking for a number to shoot for, I would say between 3 and 6 months of expenses.

Once the budget is completed and your emergency fund is set up, you may notice that you have more debt than you realize. High interest debt like credit cards should be paid off before you think about investing. Yes, that means you should be paying off your credit card every month! Debt such as a house payment or student loans is generally okay but any high interest should be dealt with.

Another thing to consider is whether your work offers a form of 401k or 403b that you can use in order to take advantage of the tax benefits inherent with those investments. For instance, I currently contribute up to my company’s match in my 401k account. My work provides my 401k through Fidelity.

I would also think about putting in the yearly Roth IRA allowment— again for the tax benefits. I currently do this as well and it averages out to be around $458 bucks a month. I currently use Vanguard for my Roth IRA.

After all that is said and done, it’s time to see how much money you have left. Investing any amount of money at first is usually better than nothing but you don’t want your money eaten away by fees.

So how much do you need to get started investing? If you’re using a traditional broker then you’re going to need a higher amount of money to offset the cost of the trading fees ($10+ per trade). Plenty of people have opinions on the exact dollar amount but I will say anything between $3-5k is good enough to get started for a traditional broker.

If you don’t have that much saved yet and are still itching to start, there’s plenty of brokers that offer free trading or a limited amount of free trades. I personally use Robinhood (affiliate link to support the site) because it offers free stock trading without fees.

You can purchase as little as a single share of a stock without paying any fees. Want a share of AAPL and only have $150 bucks? No Problem with Robinhood. Keep in mind that Robinhood has no great way to compare and contrast stocks so you’ll have to rely on doing your due diligence from other websites.

TL;DR : 3-5k for Traditional fee base brokers. Any amount with free trading brokers.

1) Create your Budget
2) 3-6 months of Emergency Expenses
3) Contribute to your 401k/403b accounts
4) Contribute to your Roth IRA
5) Invest

 

Relevant Posts:
The Noob’s Guide to Budgeting
Robinhood Tutorial

 

 

 

 

 

2 thoughts on “How Much Money Do I Need to Get Started Investing?”

  1. Many investors recommend starting with an investment target and using 33% as an initial position, growing that over time if performance supports the thesis. Do you practice that philosophy? If not, what do you typically take as a starter position?

    1. The 33% initial position is very popular among investors. I don’t have a tried and true method to my madness but I consider a full position to be around $3k with my current portfolio. I tend to dip my toes in with new investments and ramp up as time goes on, buying on dips or whenever the market is hitting a stock hard.

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