The First Steps when Investing on a Low Income

The focus of this article is investing for people with low to mid-range incomes. You don't have to have hundreds extra each month to put away. If you can maintain a checking account (and sometimes even if you can't) you can invest and grow passive income. For many people a fully funded retirement or college account is not possible, but even investing small amounts will help smooth out big money events.

When you're in a low-income situation, the best places to invest are low risk and relatively liquid, or easily accessible, accounts. If you don't have an emergency fund of two to six months expenses then establishing one is the first step. You don't have to stash that money in a mattress or in a low rate savings account. Money market accounts are available to get your investing started with little money while establishing peace of mind too.

Money market accounts give you a higher interest rate than checking or savings while still being FDIC insured. They are easy to set up since many banks will let you open online. If you need to make a withdrawal you can do so without any penalties, unlike other ways you might use to invest. Many MMAs are available with low - or no - opening minimums. Banks often offer cash incentives for opening accounts with them and you have to keep the account for a minimum amount of time and amount. Look around and read the fine print.

MMAs are also a convenient way to invest because you can also set up automatic deposits. I recommend set ting up the minimum automated deposit you can afford to invest on a regular basis. This will avoid overdrafting your regular account. As you have extra money you can invest that and grow your nest egg.

In periods of dropping interest rates Certificates of Deposit, or CDs, are a good secure place to invest. Your money will get a fixed rate of return for the duration of the deposit. You can choose to invest your money from anywhere to 6 months to 5 years. While the rate of return on a money market account might be adjusted down, a CD will hold it's value. You should NOT invest in a long term CD, such as one for 5 years, when it looks like interest rates are rising. You'll be stuck with 2-3% less for the money you're investing. If you tend towards being an impulsive spender, consider investing in CDs because they require a bit more work to withdraw the money and impose penalties. Start with a deposit of 6 months to a year, and just before it matures begin looking for better rates.

One often overlooked place to invest is in a HSA, or health savings account. If insurance isn't available through your employer this is one way to keep yourself insured and invest for the future. The heaviest blow when it comes to health care is not having any insurance whatsoever. If you develop a serious condition and decide to get insured later that condition can be excluded from coverage. Health savings account have a high deductible that must be met before the plan provides any benefits. On the upside, you have a lower monthly premium and money you deposit into the account earns interest. If you have few medical bills or go to the doctor rarely consider them as a way to both invest and take care of your health. The most important investment you can make is your health. Going without medical care is costly - most bankruptcies are caused by medical bills, not credit debt.

Once you've established an emergency fund and have obtained health insurance, both in ways that make the money work for you, look Roth IRAs as a place to put pre-tax money. These investments earn interest until you retire, at which time you make withdrawals and, presumably, pay less in tax on the money.

The most important investment advice for low to mid-income people is - invest in yourself. Knowledge is priceless. Keep reading articles like this and think critically about the advice that's given. Ask questions and participate in online forums. Invest time in developing your skills or acquiring new ones to increase your earning power.