Updated on 09.15.14

5 Ways Anyone Can Reap the Rewards of Investing

Trent Hamm

Quite a few readers simply tune out when I mention investments. They don’t believe the topic applies to them at all. “How can I possibly worry about investing when I can barely put food on the table?” they’ll ask.

The answer is simple: virtually every single person has the resources with which to begin investing. It may seem impossible for some to believe, but it’s true.

If you make purchasing decisions in your home, you have all you need to begin investing. Choose some generic items instead of the brands you usually buy and start your investing with the dollars you save.

If you ever spend money on entertainment, you have all you need to begin investing. Instead of renting a DVD at the Redbox, stop by your library, check out a movie for free, and put aside that dollar you save. There are countless other little ways to shave just a little bit here and there without changing your lifestyle.

If you use electricity, you have all you need to begin investing. Air seal your home or put in a programmable thermostat and you’ll see a significant drop in your energy bill, with which you can invest.

It all starts with the littlest of of choices.

Here are five simple steps anyone can take with that savings

1. Participate in your employer’s retirement plan. More than 90% of the employers in the United States offer a retirement plan. Many of those plans offer matching funds, in which the employer will make contributions to the plan if the employee does as well. Plus, this money goes in before taxes, meaning for every dollar you put in, it reduces your paycheck by substantially less than a dollar – and it also reduces your income tax at the end of the year. If you have a retirement plan at work and are choosing not to even consider using it, you’re choosing poverty.

2. Start an automatic savings plan. If you’ve found a way to cut your spending by even a quarter a day, you have enough to start. Set up an automatic savings plan and transfer whatever you’ve saved to a savings account each week or each month. Even $10 a month – about $0.30 a day – is a great way to start, as it will add up to $121 or so over the course of a year and continue to earn interest beyond that.

3. “Snowflake” into a savings account. If you discover useful one-time ways to save or to earn a little bit more money, don’t spend it frivolously on something you want in the short term. Instead, take that little amount – the $10 you found in the parking lot, the $7 you saved buyinig toilet paper in bulk – and put it right into your savings account. Even better, just start a jar for it, throw that snowflake right into the jar, then take it down to the bank when the jar is full.

4. Save windfalls instead of spending them. What about when something bigger and unexpected comes along? A relative dies, leaving you an unexpected sum. You get a settlement. You win a large cash raffle. You win at the casino (of course, you’d be far better off just not going to the casino, but that’s another story). Sure, feel free to celebrate with a little of that windfall, but instead of blowing through the whole thing like a snowblower through powder, put most of it into your savings.

5. As your savings grows, buy a CD – and then grow from there. Once you hit your bank’s minimums for purchasing a certificate of deposit, do so. This will earn you quite a bit more interest than you were earning in your savings account, but it will “lock up” your money for a while. That’s a good thing – since you’re not intending to spend it anyway, locking it up is just fine.

Congratulations, you’re an investor. When that CD matures and you couple it with your additional savings, you may have enough to start branching into other investments. Hold onto that money – when opportunity comes your way, you’ll have exactly what you need to jump on board.

A very specific example Let’s say Margaret chooses to start saving just $1 a day for the future. Once a month, she automatically transfers $30 from her checking account to her savings account – she doesn’t even have to think about doing it.

After a year, she has $360 in savings and it’s earned a dollar or two in interest. After three years, she’ll have around $1,100. She can then buy a $1,000 CD – a long-term one that earns a couple percent more than her savings account does.

Three years later, Margaret is still just saving a dollar a day. She can buy another CD and has about $200 left over in that account.

Three years after that, all of her CDs mature. She suddenly has about $4,000 with which to begin looking into more aggressive investments if she chooses. Maybe she buys a Vanguard index fund – they have almost no fees and can easily be purchased via their website. Or maybe she feels safer slowly building her cash reserves.

All this takes is a dollar a day.

One final point Now, I’d like you to imagine a couple more things.

Imagine if Margaret is forty when she begins this plan. By the time she reaches retirement age, after saving a dollar a day, she’ll likely have an extra $30,000 for retirement. Not bad for just a dollar a day that she’ll not miss.

Imagine if Margaret is twenty when she begins this plan. By the time she reaches fifty-five, she’ll have around $50,000 in savings. That’s seed money for a new business – a perfect way to begin her second act in life.

Imagine if Margaret is a newborn when she begins this plan (with a parent or a grandparent’s help). By the time she’s fifty, she’ll likely have (well) over $100,000 built up in that account. That’s an amount that can change a life.

These numbers assume that you never snowflake and that you never sock away an unexpected windfall, either. Imagine the possibilities.

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  1. Daniel says:

    With that $30 a month, wouldn’t I be able to take my girlfriend out to a nice dinner (or every couple of months) and create memories? Or save up for a vacation? I agree that cutting back on the candybar everyday is good and that I’ll never miss $30 a month, but there must be a goal in mind. I already save for retirement, so I am looking for another reason to invest. Maybe I’ll appreciate the flexibility it will give me in 20 years.

  2. Ben says:

    Once you start contributing to your retirement account you will never regret it because you likely forget that you are even doing it – or at least the amount of money that you are contributing. I haven’t missed a dime of the money that I have contributed… perhaps I should up it!

  3. You’ve shown people that they can redirect money they already are spending into an investment for savings. Very nice.

    John DeFlumeri Jr.

  4. George says:

    90% of all employers offer a retirement plan?!?

    That is directly contrary to an article on Yahoo Finance, about how 10% are saving too much money for retirement, which had the following sentence: “About half of all private sector employers don’t offer any type of 401(k) or pension plan.”

    In other words, a Yahoo writer says only 50% of private employers offer a retirement plan. Even if half of all employees are public sector, that suggests only 75% of all employees have access to a retirement plan, which is significantly less than your 90% figure.

    I’d be interested in where your 90% figure comes from.

  5. Bill in Houston says:

    George, I’d like to see where Yahoo got their information, personally. Trent DID supply a link above (look at the 90, it is a link).

    Anyway… one thing I’ve found is that too many younger employees do NOT take advantage of employer savings plans. Many fall into the trap of, “I have plenty of time, so why not enjoy life after four (five, six) years of college.” I won’t go into a diatribe about college being quite the party atmosphere, but the thinking is wrong. Will you miss 5% of your income if it comes off the top of your check, tax deferred? Probably not. If the employer matches, even on a step-vested basis (20% the first year, 40 the second, and so on), you still come out way ahead. Most employers match funds, and when you’re fully vested you get a 100% return minimum of at least 5% of your investment. Win-win.

    Just don’t cash in an IRA or a 401k instead of rolling it over. I made that mistake in 1994. Mind you, it was only $4000, but that would have been worth $13,000 today with me not doing a thing. Back then I spent it on a “killer vacation” just before a new job started. Stupid.

    I have a 401k. My wife has a 403b. She also has an automatic savings plan she calls “the car fund.” When the amount in the fund adds up to the amount owed on the car, then cha-ching, all gone.

    As Ben said, you’ll forget you’re even doing it. I look at my income as what I take home.

  6. George says:

    I didn’t realize it was a link until you mentioned it (thanks!). However, that article is from 1995, thus is 14 years out of date!

  7. George says:

    Okay, I found the “2008 National Study of Employers” which, for employers with over 50 employees, says 90% offer retirement plans of some sort, unchanged from the “1998 National Study of Employers”.

    However, nothing is said of employers with less than 50 employees. What percentage of employees fall into that category and how well covered are they?

  8. If your employer offers a match (and assuming no minium) you would be much better off putting the $365 pa into a retirement account.

  9. lurker carl says:

    You don’t need an employer or a matching contribution in order to save money for realizing some future goal. If your employer does not offer a retirement savings plan, open a discount brokerage account and make your saving plans meet your terms – without the high fees most employer plans incur.

  10. Manshu says:

    I’ve not yet met a person who is not interested in investing. Plenty who are not interested in saving, but hardly anyone who doesn’t want to invest.

  11. Ken says:

    Great example of how little can become much with steady plodding. Doing it consistently is critical.

  12. Peter says:

    A way of looking at and thinking about this that I recently read has given me a new soundbite to offer to friends and family who veer in the direction of not saving. It’s from William (Bill) Bernstein’s latest book and I think he paraphrased it from somewhere else. Basically, approach investing not as the means to maximize your chances of getting rich, but as a means to minimize your chances of dying poor. Not only does this help folks frame their investment actions in some sensibility when it comes to asset allocation, etc., but gives those who are not currently investing a new viewpoint to increase the incentive to begin doing so!

  13. Jules says:

    I do that, too: I have an online bank account that I use exclusively to pay my student loans. What’s left over (because I don’t believe in denominations of less than $50 when it comes to student loan repayments) gets shuttled into my ING account. It’s not money I miss because it’s already budgeted for, and it is surprising how fast $20, or (some months) $50 a month can add up.

  14. Kevin says:

    Good article. I worry about the incompatibility of setting up an automatic savings plan for someone only able to save $1/day. For someone with such a low income, chances are they’re scraping by already. And while if they really put their mind to it, they might be able to find a way to save $1/day and put it in a jar somewhere, I think making it automatic is just a prescription for a lot of bounced checks.

    Don’t get me wrong, automatic savings are a fantastic tactic for building wealth. But it relies on the person having sufficient income to meet their needs, plus have a little extra discretionary money to play with (or “pay themselves first” with). But for the kind of person for whom $1/day is a challenge, I don’t think automatic savings would be helpful. They need to address more important issues in their life first, like increasing their income and getting a handle on their budget.

    I’m also not a big fan of the line of thinking that relies on extending an imagined behaviour half a century into the future, as though inflation didn’t exist, and that person would never face any life changes that would impact their ability to stick to the plan rigorously (like, say, a bout of unemployment, taking time off to give birth to/raise children, maybe an illness or injury, a career change, a divorce, or any number of other surprises that life deals us out here in the real world).

    I think Trent’s suggestions were spot-on though, and although he didn’t come right out and say it, his plan minimized ongoing expenses for investments, which is crucial for building long-term wealth.

  15. Rick Francis says:


    The real question is- what are you willing to give up today to make your life better tomorrow.

    While I am sure that there are some people that are on the razor’s edge of survival- how many of us are _REALLY_ in that position. If you diet isn’t 100% rice you have SOME wiggle room. I suspect the majority of people that claim that saving $1/day is a challenge are paying $50+ a month for TV or a Cell Phone or some other non-necessity.

    -Rick Francis

  16. AnnJo says:

    Saving and investing are two very different things, and this article is mostly about saving, not investing. Saving seeks to accumulate and is basically risk-free. (At least, free of management and market risks; nothing is free of the risk of bad government policies that expropriate through taxes or inflation.)

    When you put money aside, whether in a jar, under the mattress, in a savings account or a CD, you are saving, not investing. Investing means acquiring an equity or security stake in a business, and exposes you to the risks of bad management by the company’s operators and market risks (competition, business cycles) as to the company’s products and earnings.

    Saving is for everybody, but I would argue that investing is not. Poor people cannot afford the risks of real investing. When you have enough money saved that you are no longer poor, then you can start thinking about taking investment risks.

    Someone who can only set aside $30 a month and whose whole nest-egg and emergency fund is $4,000 should NOT be putting it into the stock market, and furthermore would be better advised to take a side-job mowing lawns on the weekend than spending the time trying to understand the stock market adequately to make informed investing choices.

    Even if the savings are in a 401(k), a poor person with a small 401(k) should concentrate on accumulation in money market funds rather than betting on market cycles through index funds.

    I’ve seen people with $3,000-$8,000 IRAs spend hours a week studying the stock market trying to figure out a way to “get rich quick.” With small amounts like that, you simply cannot get the diversification needed to invest sensibly, and “getting rich quick” in the stock market is for the statistically few lucky winners of a gamble, not for investors.

    Investing is not only for the rich, but it is definitely not for the poor, i.e., the $30 a month saver.

  17. Bill in Houston says:

    I disagree with AnnJo. Investing is for anyone, but how much you invest and where you invest are what is different.

    My first investment was very small and incredibly conservative. This was back in the mid-90s. Mostly utilities, no pizzazz, no high tech. I added a few bucks here, and few bucks there and bought conservatively, getting 6% returns. It stayed that way until I had accumulated some capital, and from there I sold off and branched out into computer hardware and one odd software company, Microsoft. I bought 20 shares of Microsoft at 16 at the end of ’97, adding to them in ten share blocks until I owned 100 shares eight months later. I dumped it in the fall of ’99 at 48. I was concerned that the Y2K bug was going to be a big bust and that the runup was going to topple any day now. I missed that by two months. Nice little return. I stayed out of the market until 2002. My little portfolio has done fairly well. Thing is, I started with a little and built on it.

    While those people with small IRAs spending their day continually studying the market are not getting a good value for their time, they should rebalance at least twice a year.

    Money markets have little yield. You’re better off with bonds if you’re too scared to invest in the stock market.

    Here’s the actual definition of investing: The purchase of a financial product or other item of value with an expectation of favorable future returns. A CD is an investment with a low yield, but it is still an investment.

    My wife started investing the year we got married (2006). She started with a little from her own savings and has done pretty well. Her return this year has been 13%, largely due to her own conservative strategy and listening to my griping at the fools using carry trade practices to create a new bubble.

  18. Sorry Bill in Houston (17), I think Ann Jo (16) raises some valid points.

    After the 80s and 90s we’ve taken to assigning a level of predictability and dependability to stock market returns that’s unwarranted.

    A person with a large bankroll may be able to take the chance of a large double digit hit in the short run, but most average investors suffer real ills for it.

    The real payoff in stocks is for those who have the fortitude to buy when the market is crashing, and to sell when it’s peaking. How many ordinary joes and janes were scooping up bargains back in March when the market bottomed at 6600? The market was an orphan to all but the speculators.

    Who was selling at the peaks in March of 2000 or of October 2007? Not the average person. He was still buying on the myth of stocks as an all weather investment.

    The problem with the market is that the personality necessary to really make it work isn’t present in the average person. Most people have done no better than CDs or money markets in the past 10 years, which doesn’t in any way justify the risk taken on.

    There’s a time to be in, and a time to be out, and most of us, having “day jobs”, don’t have access to the information that would let us know the answer to what is probably the most important question of stock market–When???

  19. Bill in Houston says:

    Kevin, I started investing with $200 as a $30,000 a year technical writer. Mind you, I’m probably a lot older than most posters here (I turn 50 next year), but anyone can start. You don’t get high returns immediately, but you build on what you have.

    You know, I griped like you and AnnJo did, that “all the rich people” were making big money when I started investing. Sounds like class envy, doesn’t it? One virtue we Americans no longer seem to have is patience.

    Who sold at the peak in 2007? Me in Exxon-Mobil. December 18th. I sold at 93. I bought a few years earlier at 60. Why did I sell? I saw too many Big Oil comments in the year running up to July 2008. At the end of the year I thought, “Now is good.”

    The answer to “when” is always “NOW.” Why? Because an investment is NOT a quick buck, it is an investment. You’ll make a few mistakes (like me with a company named Projectavision) but in the long run you’ll come out ahead if you don’t get greedy.

    How do you access that information? Find a reputable broker. My Dad was an institutional trader (stock broker) for nearly 50 years (now he’s bored silly in retirement). He turned me on to Fidelity.

    “Day jobs.” Hey, nice class warfare snipe, dude.

  20. AnnJo says:

    @Bill in Houston – Neither I nor Kevin griped about “rich people making big money.” You entirely missed my point.

    I’ve been invested in the stock market since 1983. Like you, I sold some starting in Fall of 2007, and started buying in Dec. 2008, and my total investments today are worth about 15% more now than they were two years ago. I have nothing to complain about.

    But I wasn’t poor when I started investing. I had solid home equity, a good income, rental property and savings. I could afford to take risks with what I was investing. My point is that, contrary to Trent’s claim, some people (call them “poor”) cannot afford to do that.

    Good for you that you started investing in the market with $200 and didn’t lose your shirt. But if that $200 was all you had managed to save over the course of a year or two, as in the case Trent was using as an example, then I still contend you took a foolish risk, and the fact that you lucked out does not make a foolish move a smart one.

    Investing is for people who have enough money to diversify adequately, have the time necessary to understand what they are investing in, and have adequate risk tolerance. These traits are not those of a poor person with nominal savings.

    I have seen too many people of modest means put their meager savings at far greater risk than they should, chasing the dream of making it in the stock market. Sure, some people succeed at that, but they are the statistical anomaly.

  21. Cheryl says:

    Thanks for writing this – it’s true that I usually tune out when you write about investing. I don’t have a ton of money to put into an index fund but I could safely buy a CD at this point. Thanks for the extra kick in the pants.

  22. Bill in Houston (19)–Again I completely agree with AnnJo (20). Bill, you’ve missed the point, and if you don’t mind my saying, I think you’re politicizing my comments with terms like “class envy” and “Hey, nice class warfare snipe, dude.”

    Many of the people who visit PF sites are dealing with excess debt, low savings, etc and are looking to get on track with the advice offered, in which this site is one of the very best. Trent writes of investing in the post, but he includes CD’s, a much safer choice for those with a smaller resouce base, before moving to “more aggressive investments, if she chooses.”

    A certain amount of caution should accompany investing in the stock market, and not everyone needs to be there. It categorically is not a risk free venue, and as AnnJo describes his position of strength going into the market, it’s a disservice to imply that everyone needs to be in, especially when as you say, “The answer to “when” is always “NOW.”

    You should only be in if you have money you can afford to lose.

  23. Bill in Houston says:

    Kevin, I visit personal finance sites because I’m always looking for ways to save an extra buck or two, finding a new frugal hack, or just learning something. Many people who visit here are as you say, dealing with debt, et cetera. Many are just folks like me.

    By the way, I never said that you SHOULD ONLY invest in the stock market. I even read back up to see that. I couldn’t even infer that. Truth of the matter is, most of my investments are currently in commodities.

    The answer to when is always NOW if you are INVESTING IN YOUR FUTURE. I do NOT mean you should jump solely into the stock market (that’s foolish). There are MANY investments out there, and CDs are a lot smarter than Money Markets.

    I didn’t miss any point at all. I disagree with you. By the way, I didn’t politicize your comments, you made them and I called you on them.

    My class envy comment was directed at me (go back and read it), not you. On the other hand, your day job comment was quite obviously a dig at someone who either doesn’t work the 9 to 5 or just doesn’t have your mind’s eye view of a standard McJob. I didn’t appreciate it.

    Comment to AnnJo: I wasn’t poor when I started investing, but I carried a fair amount of debt at the time. I rented, had no other income aside from my job, and had under a grand in savings. I started with two hundred bucks, and added to it a few hundred at a time, very conservatively. I didn’t lose my shirt because I did my homework and took minimal risks. Those I took were few. I was a person of modest means at the time. I’m doing much better now, but I still don’t consider myself wealthy. I’m comfortable.

  24. AnnJo says:

    @Bill in Houston,

    I believe Kevin and I are talking about the wiser course of action for people of very modest means, AS A GENERAL RULE. You are talking about your personal experience. Because it worked out for you, you look back and conclude that you “did your homework and took minimal risks.” What would you be saying if it hadn’t worked out?

    If you had less than $1,000 in savings and were investing in the stock market, you took extraordinary risks. The fact that you were lucky doesn’t change that.

    Peter Lynch, a Wall Street legend, made the point in one of his books years ago, that if 1000 people flip a coin and the winners advance to the next round, after seven rounds there will be 8 winners left. Are they really smarter than the other 992 people? No, but they will BELIEVE they are, and so will most other people, who will be convinced those eight know the secret of “investing” in coin flips. Because you survived your risks, you have concluded they were trivial. They were not.

    The only rational way to invest is rationally. Someone with only $1,000 in savings should not be assuming the risks of the stock market. How does one adequately diversify $1,000 across asset classes, industries, currencies, deflation- and inflation-protected assets, etc., without incurring draconian transaction costs and while still preserving a liquid emergency fund? Can’t be done.

    Investors and gamblers can both win, but they are not doing the same thing. I think what you did was more a gamble than an investment. But, hey! I’ve done it myself! I’m not trying to disrespect you – I’m trying to warn people who might otherwise lose what they can’t afford to lose.

  25. Jurgen says:

    “The only rational way to invest is rationally. Someone with only $1,000 in savings should not be assuming the risks of the stock market. How does one adequately diversify $1,000 across asset classes, industries, currencies, deflation- and inflation-protected assets, etc., without incurring draconian transaction costs and while still preserving a liquid emergency fund?”

    By buying an indexfund in a recession.

  26. Bill in Houston says:

    What would I be saying if it hadn’t “worked out?” Actually AnnJo, I would have tried again. After all, it was two hundred dollars. I would have done more research, perhaps examined different markets, but still invested something.

    I wasn’t lucky, I did my homework. This isn’t a crapshoot. It is work. There are investments with guaranteed returns (they just don’t pay out much). You go from there.

    I am a rational investor. Always have been.

    As for Peter Lynch, he should be quoting statistics instead of parable. There are ALWAYS winners and losers. His analogy breaks down after three rounds, because you can’t have 62.5 winners unless there is a bye round. Depending on the degree of risk I take it is easy to make it past the so-called 7th round. By random choice I have a 1 in 1024 chance of flipping heads ten times in a row. That’s random. I’m not that kind of guy.

    By the way, no one takes a thousand bucks in savings and can diversify properly across most asset classes. You’re moving the goalposts and misstating what I said before. I’m tired of this.

    Lastly, before this turns into yet another mis-statement over what I said, I never said or even alluded to ANYTHING being trivial. I simply did not want to write a small book about A FEW of my experiences on someone else’s blog. It is called brevity.

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