I Want to Invest, But How Do I Get Started?
One of my loyal readers posed a question to me the other day that I thought would be a great subject to cover in a post. Here it goes:
"You have a lot of great investing ideas that I would love to try, but where do I find the money? With a family and all the related household expenses that go along with that, it's difficult to find extra money to invest."
Here are 10 ideas for getting extra cash to invest:
Get Rid of Credit Cards - First, pay off those credit cards - that's a guaranteed return of whatever interest you are paying on the balance (I just checked and the lowest I saw was between 15% and 26% with excellent credit)! Once the cards are paid off, use the credit card payment money to accelerate your regular savings (see 3 below).
Contribute to Retirement -Â Next, make sure you are contributing as much as you can to your 401(k) at work and your IRA outside of work - that is money you automatically save / invest and you'll never miss it; if you can't contribute the maximum, at least contribute an amount equal to what your employer matches; then you can work on saving extra money for non-retirement investments
Hide It -Â Out of sight out of mind - try saving a small amount every month, like $100 or $200 automatically into a savings account and ignore it; once that account grows to $1,000 or $2,000Â you can use that for an investment - maybe to purchase some dividend-yielding stocks that can provide positive cash flow to further boost your savings (see this post for some ideas); I currently invest $100 / month in Bitcoin and while a bit more risky, over time that has grown nicely (see my recent post on crypto currency rankings here)
Second Mortgage - When my Dad had an opportunity to buy the building he was leasing for his business from the owner, he didn't have the cash for the down payment even though his business would support a new loan payment; he really wanted to buy the building to lock-in his occupancy cost and enjoy the long-term appreciation; he was able to take out a second mortgage on his home to come up with the down payment to purchase the building - fortunately, the resulting home mortgage payment was still manageable within his budget and since his home had appreciated significantly from when he bought it, this enabled the second mortgage; this was a very creative approach and has turned out to be a great idea since both properties have continued to appreciate and should provide retirement funds in the future (either from rental income or outright sale); sometimes a second mortgage can be a great way to get a large amount of investing funds, as long as the higher mortgage payment is not an issue
Personal Loan - If you have a great investing idea, you want to execute it right away and need up to $35K, the best option is to take out a personal loan; my favorite is Prosper and I have used them a couple of times to borrow money for investing; you need to be careful, though, because if the investment doesn't pan out you will still have to pay back the loan - One idea I like is buying music royalties (see my post on this subject here) with that money, since they usually pay out for a 10 year period or longer and the loan is typically three years (the loan interest rate is usually way less than the yield on the royalty asset, especially if you have good credit), so in the early years the investment cash flow helps pay the loan off (with a little bit of a mismatch in timing since the royalties typically pay quarterly and the loan payments are setup monthly); after the loan is paid off, the cash flow is totally free and clear for the remainder of the term - doing this repeatedly can build a sizable quarterly cash flow stream over time
Friends and Family - Maybe you have some friends or family that want to invest along with you; if you pool your money you can make a larger purchase like possibly a rental property; there are some challenges with multiple owners of real estate that can be solved if you form an LLC to take the investment money and then use the cash to buy a property that the LLC owns. That way when an investor wants to cash out, you don't necessarily have to sell the property, you can just find a new investor or have the other investors increase their ownership to buy out the departing investor - all of this is pretty complicated and raising money for these deals can be a challenge, so make sure you have a good plan and work with a good attorney / CPA if you decide to go down this road
Crowdfunding - If you have a great business or investing idea, there are plenty of crowdfunding sites now where you can go to raise money to execute your plan; the downside of this is that you will have to share ownership and possibly control of your venture but "other people's money" is a powerful tool to launch an investment or new business idea;Â crowdfunding spreads the risk around so that no one takes on too much and yet you can still assemble a sizable amount of capital
Side Hustle - Start a side hustle to earn extra cash and take that money (after setting aside for taxes) and put to work in an investment; there are plenty of ideas for side hustles, including driving for Uber/Lyft, selling items on EBay (see my post on this), starting a blog, writing a book, start an online streaming or YouTube channel, sign up to do "gigs" on Fiverr, etc. The possibilities are endless and the only limit is your time, so you should experiment and gravitate towards the side hustles that give you the best return for your time.
Day Trading - You may be able to start with a small amount of money like $1,000 and day trade penny stocks for a while to build up your account balance. This will require you to develop a "system" that includes researching trends in individual stocks, understanding how to read charts and look for "signals" that a stock is going to increase / decrease, making strategic buys, setting "stop loss" orders to minimize losses and selling when target appreciation rates are achieved. Since there is a large amount of volatility in penny stocks, there is tremendous risk but also tremendous opportunity for large short term gains. It's hard work, but once your account reaches $10K to $20K you can move that into "safer" investments that either provide cash flow, appreciation or both. Don't forget to set aside money to pay taxes!
Put Your Money to Work - If you have money already and it's sitting in a bank savings account earning less than half a percent, go back up the the top of this list and look for better ways to deploy that money and put it to work. At least look at better interest rates to earn on that money (see my post on that here). Â
I hope these ideas help you understand that "where there's a will there's a way" and if you really want to get started investing, there are plenty of creative ways to get the money you need to start.
For more investing ideas, click here. Â
Disclaimer: Â I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.