Wealth Building on a Budget: Smart Investing Strategies for Beginners

When tumbleweeds are blowing through your empty bank account, growing your wealth may seem impossible.

But no matter where you are financially, you can begin taking small steps toward a more solid economic future.

Even if you only have a few bucks to spare, you can start saving and investing today. Here are some of our favorite ways to grow your wealth when your funds are limited.

Educate yourself about money

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This strategy is free, thanks to your local library and the internet. The more you understand about investing, saving, and budgeting, the easier managing your money will be, even if you don't have a ton of it. 

Start with basic information about tracking your expenses and maintaining a budget, then work on more complex topics like investing. The more you know about money, the more you can eliminate some money stress from your life. 

Get your employer 401(k) match

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If your employer offers to match some of your retirement contributions, take advantage of this huge benefit. Most employers cap this benefit at around 6% of your salary and will match between 50% and 100% of what you put in.

So if you make $50,000 per year and your employer matches 50% of your contributions up to 6% of your salary, you could put in up to $3,000, and your employer would put in another $1,500. 

It's a smart move if you can afford to contribute to your employer's match because you're essentially getting free money.

Invest in your career

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One of your greatest financial assets is your ability to earn an income. Your career is very important to how much money you'll be able to make throughout your life.

While the money you spend getting additional certifications, degrees, or training may not pay off today, it can be worth it down the road if you can increase your earning potential.

Automate your savings

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The easiest way to save money is to set up an automatic savings plan through your bank or employer — and never touch it. 

When a set amount goes into a savings or retirement account each paycheck, it will build your wealth quicker than you think.

Open a high-yield savings account

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Boost your savings efforts by putting your money in a high-yield savings account where it can earn interest. Savings account rates are better now than in years, with many banks and credit unions offering above 4% APY. 

Online banks offer better rates than their brick-and-mortar counterparts, but be sure to shop around, as this isn't always the case.

Pay off high-interest debts

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While earning interest on your savings is more exciting than paying off debt, high-interest debts (such as personal loans and credit cards) hinder your ability to save and invest. 

Get rid of these as soon as you can. Once you pay off those debts, reroute the money you used to spend on interest and payments into your savings or investments.

Create and stick to a budget

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Tracking your expenses and making sure they stay within the guidelines you set is key to creating a gap between your earnings and your spending. 

The bigger you can make that gap, the more money you'll have to save, invest, and build wealth. Try using an app like Mint or YNAB to automate the process.

When you make the active choice to live on a budget then you can keep more money in your wallet every month, which gives you more to save.

Have an emergency fund

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It's hard to watch an emergency fund just sit in your savings account doing nothing, but having one can help you bounce back in the case of a job loss, unexpected medical bill, or accident. 

Experts recommend keeping 3-6 months' worth of expenses around for a rainy day.

Set S.M.A.R.T. financial goals

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Create goals for yourself that are S.M.A.R.T., which stands for specific, measurable, achievable, relevant, and time-bound. 

These goals should have a set dollar amount attached to them. Make sure they're a stretch but not so much that you won't be able to attain them. Set a deadline for your goals, and track your progress.

Ask for a raise

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Nominal year-over-year wage growth is between 4.5% and 5%, so if you haven't gotten a decent raise in a while, it's time to ask for one. 

To up your chances of getting a pay bump, pick an appropriate time to talk to your boss (such as during a quarterly review) and list your accomplishments over the last six months or so.

Come prepared with research on what's standard pay in the industry for someone of your skills and experience. If you're nervous, remember — the worst they can say is no.

Start a side hustle

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If your company is one of the many going through layoffs and a raise isn't in the cards at the moment, consider earning money outside of your 9-to-5 job. Starting a small business can be rewarding, both emotionally and financially.

If you don't want to put in the effort of creating a product to sell, you can earn money through weekend gigs such as DoorDash, Uber, or PostMates.

Open a brokerage account

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If you're already investing in a retirement account and have stockpiled some emergency savings, you can take your wealth-building to the next level by investing in stocks and bonds through a brokerage account.

This account doesn't have the same tax breaks as a 401(k), but a brokerage account offers a wide variety of assets to grow your money. You can open one with Charles Schwab or Fidelity with $0.

Reinvest dividends

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Whether it's in a 401(k), Roth IRA, or brokerage account, change the settings to reinvest your dividends. Many stocks pay their shareholders a dividend periodically (usually quarterly) as a share of the underlying company's profits.

Reinvesting these dividends allows you to purchase more stock with these extra payments, which will grow your portfolio balance substantially over time.

Invest in low-fee index funds and ETFs

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Mutual funds and ETFs offer a mix of stocks and/or bonds to help you diversify your investment portfolio. However, many of these come with substantial fees that can eat into your earnings.

Keep these fees at a minimum by choosing index funds and ETFs that track a major index, such as the S&P 500. Index funds give you a diversified mix of stocks while minimizing investment fees.

Keep sufficient insurance

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It might feel like the money you pay in insurance premiums would be better spent on your investments, but insurance is essential for protecting the assets you cannot afford to lose.

Paying out of pocket to replace your home in case of a fire or your car in case of an accident is impossible for most people, so insurance shields your finances in case of these catastrophic losses.

Minimize your tax bill

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We typically only think about taxes around April long enough to grumble about filing them. But if you play your cards right, you can minimize the tax you pay and put more money toward building wealth.

Start by making sure you're taking the right amount of exemptions from your paycheck. The goal is to get as close to a $0 refund as possible without owing any additional tax. 

You can also take deductions by contributing to a retirement account or health savings plan to reduce the amount of your taxable income.

Examine and abandon limiting beliefs

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These pop up in a hundred different varieties. You might think that building wealth is impossible, that rich people are snobby, or that having money turns people into greedy monsters. As long as you hold onto these limiting beliefs, you'll have a hard time saving and investing.

Take some time to ponder and journal on how you think and feel about money. Then rewrite those narratives into more constructive mantras. 

Bottom line

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Building wealth when you don't have much can seem like a huge leap of faith. Instead of looking at how far you have to go, focus on taking one or two small steps toward your financial goals.

Open a new savings account, even if you only have $1 to put in it. Start building a case for a raise. Look up a new skill you can use at work. Pick one of the items in this list, and work on it for a few weeks. 

Then move to another one. On your financial journey, be sure to monitor your progress. Look back periodically and congratulate yourself on how far you've come and how much you've lowered your financial stress.

We can help boost your earning potential even further!

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