If you have ever wondered how an average person can invest in the stock market, then this will be the article for you. I am just an average guy. I don’t make large amounts of income every year but I do have a high savings rate and continue to put my money to work for me. So I want to share how I do this so that you can invest like the average Jason!
Increasing Earned Income
While you may not be starting out making very much earned income, it is highly advisable that you continue to try and increase your earned income. The earned income is where this whole process begins because it is with this money that you begin investing.
I am a huge supporter of learning. It is a fact that the more you learn, the more you will earn!
No matter what your profession is there is probably ways that you can earn more income. You have to educate yourself on what you need to move up regardless if that is certifications, college degrees or just experience.
Be sure that you are learning skills that you can continue to apply and help you grow your earned income.
Besides you could lose your job for any number of reasons but once you obtain the skills and knowledge that can’t take that from you!
Living Below Your Means & Your Savings Rate
Earning more income is very important but it isn’t going to do you any good if you are spending more than you earn. So to start with you want to live a lifestyle that doesn’t require you to spend more than you earn because that is like building a house of cards.
Once you have control of your finances and you are spending less than you earn then you want to start increasing your savings rate. Currently, I have a savings rate between 40% to 50% of my earned income. For me that still isn’t good enough, I want to continue to find ways to optimize and to increase my savings rate. I have no problem doing this as long as I am still able to continue living the lifestyle that I want to live.
I remember just starting out I was only saving 5% in my Roth401K. Then once I had secured an emergency fund for myself, I began using other vehicles to continue to save like an HSA, an ESPP and savings accounts.
Once I had a bit saved in my savings account I decided that I needed to put that money to work earning me even more money.
Beginning The Investing Journey
Some of the brokerages that I used early on are no longer around any more but they’re plenty of good options out there.
One app that is pretty popular that I myself use is called RobinHood. I don’t currently contribute to it but it does allow you to make stock trades without having to pay trade commision fees. The negative side is that it doesn’t allow you to DRIP your dividends.
Another broker that I use is Ally Invest. They will allow you to DRIP your dividends but they also charge you $4.95 for every trade that you make.
One thing that is worth noting is that RobinHood doesn’t offer a retirement account which would allow you to grow your money tax free.
The good news is that Ally Invest does offer several different options of retirement accounts which can be utilized very effectively.
I would recommend either one of these for a beginner but I would advise that they are aware of the pros and cons of each of them.
Now that you have a brokerage account that you can buy stocks with it is time to start buying.
Everyone will have a different perspective on this strategy but this is mine.
If I am doing a dollar cost averaging strategy I will use the RobinHood app so that I can continue to buy more over a longer period of time.
If I am choosing to make a bigger purchase all at once I will use the Ally Invest account. Since I will be subject to the $4.95 trade fee, I will not make a purchase for under $500. That way it is only costing me 1% to buy the stocks. The way that I rationalize this is that when I collect my first dividend payment that money is to recoup the money spent on the trade fees.
There have been plenty of times where I have used more than that to invest at one time but I always look at the $500 mark as being my minimum required to invest.
Once again, I know that everyone’s strategy on that will be different but this is mine.
Let’s not forget that we are talking about an average Jason that doesn’t have huge sums of money to invest all at one time. By getting your money in the market though that allows it more time to grow and compound while you are continuing to save more money for your next investment.
What I have found that works best for me is that I initiate the position with that $500ish amount and then I will continue to watch that stock as well as any others that are on my stock watch list. I understand the importance of having larger positions since that will allow my money to compound even faster but like I said earlier I also understand that having your money in the market has plenty of benefits as well. So I employ both strategies over time to try and capitalize on them.
The strategies that an average Jason employs is nothing fancy.
I try to earn more money while increasing my savings rate. Then I put the money that I have saved to work trying to earn me even more money over time.
All of my thinking is for the long term. Lately, I have found myself saying this a lot. I am not out here trying to swing for the fences and hit home runs all the time. What I am trying to do is consistently hit singles and doubles because it is that consistency that will allow me to win over time.
As always I look forward to reading all of your comments and questions, until then….. happy investing!
-Jason from MoreDividends.com
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