What to Invest in When You Have Low Income

Let’s face it: investing when you don’t have a lot of money coming in is difficult. It requires enormous discipline to make progress. You must make every dollar count. But investing when you do not have a lot of money coming in is possible!

Before we begin, please remember that this blog is not a source of financial advice and is for informational purposes only. If you are unsure about your ideal strategy, consult with a licensed financial professional!

Let’s go over some of your investment options below, even if you have low income:

Pay Down Bad Debt

Although it’s not a true “investment,” paying down bad debt can be a very powerful way to increase your available income. Really, paying down bad debt should be the first step before you invest in anything else.

What is bad debt? Bad debt is debt that will not help you to build wealth or generate income. Naturally, bad debt is the opposite of good debt. Good debt, or leverage, is debt that helps someone to produce a return greater than the cost of the debt. For a detailed comparison between good and bad debt, check out this article.

Often, bad debt is high interest debt that was used to purchase something with only the short-term in mind. Paying for a vacation on a credit card and carrying the balance for many months is a great example of bad debt.

Look at it this way; if you have 18% interest rate credit card debt, paying down that debt serves as a sort of instant 18% “return.” Good luck finding a passive investment that can reliably produce more than 18% returns year-over-year. Rather than take ridiculous risks, get rid of that debt and take some of the pressure off. As a general rule, pay off all debts that are over 7% annual interest as fast as possible (the S & P 500 index historically earns average annual returns of 7%). Depending on your situation, it can make sense to hold on to that debt, but probably not.

Once you’ve paid off your bad debt, you can start investing in other things more aggressively.

Contribute to Your IRA

If you do not have a lot of free cash to invest, you should take care of the necessities first: retirement saving is one of them.

An IRA, or individual retirement account, is a tax shelter for retirement investments. You can have a Roth or a traditional IRA. If you use a Roth IRA, you pay taxes before you put the money in and then never pay taxes on that money again. If you use a traditional IRA, you get a tax deduction the year you make the contribution and then pay taxes when you withdraw.

For a more detailed breakdown on the differences between Roth vs. traditional IRAs, check out this article.

Technically, the IRA itself is not the investment. It is something that houses your investments. You put investments inside of the IRA that gives special tax treatment. Common IRA investments include broad index funds and other mutual funds. These funds take a variety of stocks and bonds across the market in an effort to follow historical rates of return. While you can invest in other assets within an IRA, including gold, collectibles, and even real estate in some cases, it’s probably best to keep it simple and invest in diversified stock and bond funds.

Total annual IRA contributions are currently capped at $6,000 per year per person. This $6,000 limit is for all of your IRAs combined, so having multiple IRAs will not boost this limit. If you are unable to max this out each year, you probably should focus on finding ways to increase your income or decrease your expenses before investing elsewhere. Unfortunately, IRA funds are only meant to be withdrawn after you turn 59 1/2 years old, so IRAs are not very useful for early financial independence. That said, you can withdraw your Roth IRA contributions (but not any gains) without penalty before you are 59 1/2, but that can put your retirement at risk. You should pretend that you will never see your IRA contributions until you are 59 1/2, as that is your safety net once you are retired!

Invest in Dividend Stocks

Dividend stocks are a low-cost way to invest and start building up an additional income stream.

Profitable companies often pay out quarterly dividends to their shareholders. If you own one of those companies’ shares, you get a cut of their profits. You can invest in dividend stocks individually or in funds focused on dividend stocks like Vanguard’s VHYAX or Fidelity’s FDGFX, among many others.

However, buying a few dividend stocks will not make you rich. Typically, the best dividend stocks pay about a 3% annual yield, meaning that, for every $100 in stocks that you buy, you would only make about $3 per year in dividends.

Another, similar option to investing in dividend stocks is buying shares of REITs (Real Estate Investment Trusts). REIT shares are like dividend stocks, but for real estate. Basically, the REIT takes investors’ money, invests it into rental real estate, and then distributes the rental income to the investors. This can be an easy way to diversify your investment portfolio with real estate holdings without having to manage rental property yourself.

The best part about dividend stocks and other securities are that you can get started with very little money. You can buy shares for as little as a few dollars each in many cases. This makes them a viable option for low-income investors for building a solid portfolio.

As a bonus, you can use you can invest in dividend stocks, REITs, and bonds within your IRA!

Low Down Payment Real Estate

While it will take more money than buying a few shares of stock, rental real estate is a powerful investment option.

In short, you pay for a portion of the property up front and take out a mortgage to pay for the rest. You then rent out the property so that the rental income offsets the mortgage and monthly expenses. You keep the difference. The mortgage is paid off over time, building your wealth in turn!

This is where house-hacking can be an amazing option.

House-hacking is where you buy a property, live in it, and then rent out the extra rooms (or units if you buy a multi-unit building).

Because you are living in the property, you can gain access to owner-occupied financing. Owner occupied financing typically has much lower interest rates and allows you to put much less down to purchase the property than a typical investor. This is why it is an especially attractive option for someone who does not have a ton of savings built up. In the case of an FHA loan, you can buy a property for a measly 3.5% down payment, giving you the ability to purchase real estate with relatively little money.

House-hacking is one of the best strategies for real estate beginners.

For a more detailed guide on house-hacking and how it can propel your financial future, check out this article!

That said, whenever you are using debt, you are taking a substantial risk. While your effective returns might be greater, your risk is greater as well when you use more debt. If you default on your loan, you lose the whole property. That’s an expensive loss no matter which way you spin it, and it could be devastating to your financial well-being.

The safest way to invest in leveraged real estate is to always keep at least a few months’ worth of reserves on hand. Do not go and spend all of your cash on one property and leave yourself with no backup plan. At least make sure that you have some cash on hand to cover the mortgage payment and other expenses for a little while if the property goes vacant or suddenly needs big repairs.

However, if you buy and hold a great real estate deal for the long haul, you could really put yourself ahead financially. Once the mortgage is paid off, you come away with a fully paid off property that can dramatically increase your available income in addition to boosting your net worth.

Saving for a down payment (and at least a few months of reserves) can take a while. But the payoff can be great, and can put you in an excellent position to build wealth and increase your income over the long-haul.

Invest in Yourself

Especially if income is an issue, it can pay off massively to invest in yourself. While recklessly spending money won’t make you better at your job or improve a skill, investing your time and energy into becoming really good at something productive can pay massive dividends.

Ask yourself: is there something I could be doing to be more productive? Is there something I can do to learn a new skill? What can I become an expert in so that I can increase my income?

Increasing marketable skills takes time and effort. But it can pay off in big ways! Once you boost your income, you will be able to allocate more money towards your investments. As your investments (and knowledge!) compound, it will become exponentially easier to invest more and more.


Unsurprisingly, the things that someone with low income should invest in are mostly the same as what higher income people invest in. Investing should predominantly be for the long-haul. It will probably take a long time to build up a sizable portfolio, but the results are just as sweet!

Once you have invested enough, you should have multiple streams of income to give you peace of mind and lasting wealth. This can only be achieved through consistency and discipline, no matter what income level you are at.

Jack Duffley

Jack Duffley is a real estate investor and attorney based in Houston, TX.

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