7 Ways To Start Investing For The Cost Of Your Morning Latte
At this point, everyone’s heard of the Latte Factor — that if you give up little luxuries like your daily $5 latte and stick those savings in an investment account instead, you’ll retire a real-estate-owning millionaire instead of an avocado-toast-eating aging millennial. Personally, I think that’s a dumb idea for a variety of reasons. But nevertheless, it’s true — to some extent — that you don’t need to have a ton of money to learn to start investing. In fact, there’s a multiplicity of ways you can jump into the big, bad world of investing with as little as the cost of that latte financial gurus won’t shut up about.
Since its ~officially~ fall, let’s assume purchasing a Pumpkin Spice Latte (or its festive equivalent) is on the radar for most people at least once this season. Here are just a few ways you could use the cost of a single PSL — roughly $5 — to jumpstart your career as an ~official investor~.
1. Open a “high-interest” savings account. I realize this is the most boring way to consider yourself an investor, but it’s also the simplest. “High-interest” is in quotes because I continue to find it absurd that bank accounts consider 1% interest to be “high” for a savings account, but 8% on my student loans is considered perfectly reasonable. But I digress. A lot of savings accounts will actually not even get you up to a full percentage point in interest, so here’s a few that do! Barclays, Discover, and Ally all offer savings accounts with APYs of 1.2%+, plus no minimum opening deposit or monthly fee — so get you a savings account with that $5 and enjoy the sweet, sweet, sixty cents of interest that’ll get you annually. (I’m not bitter, I swear).
2. Enroll in your employer’s 401K plan. This one lets you actually buy the PSL, too! With your newly acquired PSL in hand, walk over to HR and ask about enrolling. You can invest a fraction of your salary into a 401K — as little as 1%, and often employers will match or even exceed your contribution by a certain percentage. Your contributions are easily adjustable, so when you’re feeling a little extra flush, you can up them. For instance, my last company offered a 7% match if you contributed 2% of your salary, so for roughly the first year I worked there, while I was getting my financial bearings in NYC, I contributed 2% of my $35,000 salary. I gradually upped that as I felt more financially stable, and by the time I left two years later, I was regularly investing 15% which, combined with my employer match, put roughly a quarter of my salary into a retirement account. Since these transfers are automated and pre-tax, it does three great things: 1) reduce the amount of taxable income you’ll eventually have; 2) set you up for a sweet tax credit if you hit a certain amount on a low income; and 3) take literally no brainpower to implement once you set it up.
3. Or, set up your own 401K. As a freelancer, entrepreneur, or student, you can still start saving for retirement even if your “employer” doesn’t offer options to do so. Take the cost of your PSL and open an Individual Retirement Arrangement (IRA) with a discount broker like E*TRADE or TD Ameritrade, both of which have no minimum initial deposit requirement, meaning $5 is literally all you need to feel extremely mature and full of foresight for caring for your future in this manner. And once you fund it initially, you can continue with direct contributions out of your paycheck, just like an employer-sponsored retirement plan would let you do. For 2017, you can contribute up to $5,500 to an IRA (which is a lot!), but discount brokers will let you start way smaller than that.
4. Make room in your budget for investing. The more you can set aside to invest, the more you’ll eventually make. Apps like Digit will analyze your spending over a certain period, then make small, periodic transfers into your Digit account. These transfers are timed to occur away from bill and rent payments (hence the account analysis) and are tiny enough you won’t miss them. Do this for a few months, and you’ll have enough of a nest egg to kick off your investing career.
5. Start investing your spare change. Another way to have your PSL and invest, too! Sign up for Acorns, which magically turns you into an investor overnight by literally investing your spare change. Basically, every time you make a purchase, Acorns rounds up what you spent to the nearest dollar, then automatically invests your spare change in a series of well-picked ETFs, basically doing all the work for you. It charges a minimal account maintenance fee (and waives it for students!) and basically lets you set up a portfolio just by going about your everyday business.
6. Open a low-cost investment account. If you’d rather invest the $5 than just the spare change from your latte, consider opening an account with a service like Betterment. It’s a robo-advisor service that has no minimum balance and no trade fees, meaning you really can get started with an initial $5 investment. Just make an initial deposit, answer a quick survey about your financial goals, and the company takes care of the rest, investing your money into low-cost funds. Like Acorns, Betterment charges a small account maintenance fee of .25% on your total balance, and you can even set up scheduled recurring deposits to fund the account. Set it, forget it, and watch your money grow.
7. Open a low-cost brokerage account. If you’d prefer to invest a more traditional way, investment platforms like Robinhood let you trade shares with no fees or commissions. Traditional brokerages can charge anywhere from $5 to $20 on a single trade, so online-only alternatives like Robinhood are a great way to start out with stocks once you’re comfortable making trades on your own. If you’re a jet-setter at heart, I also love Charles Schwab, which lets you trade a list of 100+ ETFs with no commissions and no account fees. Plus, it gives you a debit card linked to your brokerage account that has no foreign transaction fees and lets you withdraw cash from any ATM worldwide without charge — it actually refunds you ATM-imposed fees at the end of the month! Both Robinhood and Charles Schwab have no minimum balance for their brokerage accounts, so use that $5 to open an account and get trading right away!
Meghan Koushik is a cheese enthusiast and law student in California. You can find her on Instagram.
Image via Unsplash