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Smart Investment

How to Invest Small Amounts of Money

Investing isn't just for the wealthy. Almost anyone can devote at least a little money to investments, keep close tabs on it, and wind up with more money than he or she started with. If you have a few thousand  or even a couple hundred you don't need right away, here are some suggestions on how to make the most of it.

1 Pay yourself first. Set aside as much of each paycheck as you can for investing. Do this even if you can devote only a few hundred at first. Even 500 per week will add up over time. Try to cut your costs of living. Don't deprive yourself of necessities, but try to cut out luxuries, anything you don't have to have. Some of the wealthiest people in the world lived frugally when they first became serious about accumulating wealth.
If your employer offers direct deposit, consider sending a portion of each paycheck directly to your savings or investment account. If you never see that money, you won't be tempted to spend it.

2  Discipline yourself to build up your emergency fund to six months' worth of living expenses. You should also pay off any high-interest debt you're carrying. This is especially important in the likely event that the interest rate you're paying on such debt exceeds the interest rate you could expect to earn with your investments. See how to decide whether to invest or pay off debt for more information.

If the interest payment on your debt is higher than what you'd be making with an investment, it's probably not wise to invest at first. In this case, try to pay off all your debt before investing your surplus; that way investing will actually make you money instead of merely underwriting your monthly debt payment.

3 Before you invest, educate yourself. You need to understand what investment options you have, how to read financial statements, how to analyze stocks (for quality, valuations, financial strength, growth potential, etc), as well as how to avoid investment scams and pitfalls, and where to find information.

Warren Buffett, one of the most successful investors ever, had read every investment book he could lay his hands on (at least 100 books by his count) before he turned twenty.

4 Promise yourself that you'll keep your costs of investing (fees and commissions) to less than 2% of the amount being invested. Multiply the amount you have to invest by .02. If the trading cost is more than that, put your money in a savings account instead until you can find an investment opportunity with a lower cost ratio.