So, do you think you need to swim in cash to invest and be on a path to financial security?
You’ve probably glared at ads about investing in your future and thought,
“Nice, but where should this ‘extra money’ come from?”
Let me respectfully shatter your doubts.
You could start investing small and hit it out of the park! Those small investments could be your ticket to lasting financial freedom.
Intrigued? Well then, let’s begin.
Three Conventional Pathways to Financial Security
Pathway One: The ‘Big Win’ Approach to Wealth Building
The “Big Win” path to financial security is a financial daydream with us fantasising about that perfect investment. Who wouldn’t want to ride the coattails of the next Amazon, snatch up a penthouse in an up-and-coming neighbourhood, or get in on the ground floor of the next big tech disruptor?
The allure is almost irresistible.
But hold on a second. As tantalising as it is to imagine turning a quick profit with these high-stakes games, there’s a flip side.
These investments are high risk, high expertise, and high initial capital ventures.
Stocks can be volatile—today’s darling can be tomorrow’s flop.
Real estate markets can crash.
Start-ups? Most businesses fail, and your money can go down the drain faster than you can say “initial public offering.”
So, while the potential for outlandish profits can make you feel like a Wall Street whiz kid, the gamble could just as quickly land you in the financial ER.
Pathway Two: The ‘Get Rich Quick’ Cul-de-Sac
“Get Rich Quick” is a siren call, luring you in with promises of fast money and minimal effort. We’re talking Multi-level Marketing (MLM), lottery tickets, and the crazy world of day trading.
Let’s be honest – who hasn’t been tempted?
MLM promises passive income if you can “build your downline.”
Lottery tickets—well, they’re the dream of instant millions for the price of a coffee. And day trading? That’s where you make quick money with just a few clicks.
These options are fraught with pitfalls. MLM often becomes a pyramid-shaped disaster, leaving you with a garage full of unsold products.
The lottery? Given the astronomical odds, you may as well flush that money down the toilet.
And day trading? It’s essentially glorified gambling; most people lose more than they gain.
What’s worse, these schemes often prey on the desperate and uninformed, making you susceptible to scams and financial ruin.
Pathway Three: Work a Highly Paid Job and Save
The “Land a High-Paying Job and Save” is the model generations have preached as the gold standard for financial security.
Sounds like the dream, right? A high income should solve all your problems, paving a smooth road to a villa in the south of France—or at least a comfortable retirement.
But let’s think this over for a second. First, high-paying jobs often come with golden handcuffs: long hours, high stress, and sometimes soul-sucking work.
Even if you’re making bank, lifestyle inflation has a way of creeping in. That shiny new car, the VIP gym membership, or the 5-star vacations you “deserve.” Before you know it, your expenses have ballooned, and your savings? Not as robust as you’d hoped.
Moreover, high-paying roles are few, and clinging to this narrative only fuels income inequality and financial stress.
High pay is not a guaranteed recipe for financial freedom.
The Surprising Reason Why Small Consistent Investments Are the Way to Financial Security
The Power of Compound Interest
Let’s shift gears and talk about the unsung hero of long-term wealth building: compound interest.
Think of it as the snowball effect for your money. You start with a small investment; it earns interest. Next year, you earn interest not just on your original amount but also on the interest you’ve already gained. The process keeps repeating, and voila! Your investment doesn’t just grow; it explodes over time.
The magic of compound interest kicks in when you continuously contribute to your investment account. It’s like adding more snow to that snowball as it rolls downhill, gathering momentum increasingly rapidly. Over decades, even modest, regular contributions can grow into an impressive sum, thanks to the compounding effect.
But let’s not ignore the pitfalls. Compounding needs time to work its magic; if you withdraw funds early, you disrupt the cycle and severely limit your gains. Plus, not all investments are created equal. While compound interest is a powerful ally in your quest for financial freedom, it’s not a “set it and forget it” deal. You have to play it smart to reap its full rewards.
Examples of Compounding
Let’s make this easier to appreciate using an example.
Assume you have £1,000 worth of savings and invest in an Index Fund returning 10% annual interest (average). Next, assume you contribute £50 per month to this investing account. You will have £13,034.64 in ten years – thank you, compound interest.
Okay, I may be overly optimistic about the returns (though, historically, Index Funds return 10% annually on average). Let’s repeat the calculation assuming a 5% annual return. After compounding for ten years, you will have £9,443.47.
What will happen if you invest £100 per month?
Assuming an annual return of 5% in ten years, you will have £17,239.94. And assuming an annual return of 10%, you will have £23,362.24.
Which is way better than thinking you have no money to invest in your future. And £50 monthly is two cinema visits. Just saying.
(You can play with this compound calculator to check other scenarios.)
Psychological Benefits of Persistently Investing Small
There’s something psychologically soothing about the steady-as-she-goes approach of persistently investing small amounts.
Let’s be honest: high-risk investing feels like riding a roller coaster you’re not sure has been properly bolted together. One day, you’re on top of the world, and the next, you’re plummeting. The stress? Off the charts. But when you opt for smaller, consistent investments, you take the scenic train route instead. Sure, it’s slower, but it’s also far less nerve-wracking.
This strategy has the remarkable benefit of transforming investing from a risky gamble into a simple habit. Just like you don’t skip brushing your teeth, you won’t skip adding to your investments. This habitual approach removes the emotional guesswork and impulsivity that often lead to poor investment choices.
Investing small amounts regularly also instils a sense of discipline and financial mindfulness. It makes you an active participant rather than an anxious spectator in your financial future. So, you’re not just growing your wealth but also your financial confidence and peace of mind.
Now, who wouldn’t want that?
Investing Small is a Realistic Wealth Building Option
Persistently investing small amounts opens the doors of opportunity to everyone. The beautiful part? You don’t need to have a lump sum to start. With as little as a few pounds, you can step onto the investing highway to wealth building and financial security.
Thanks to today’s technology, it’s easier than ever. Many investing platforms now offer options like fractional shares and low-entry funds. These features mean you can own a piece of that high-priced stock or diversified fund without risking your life savings. Even better, these platforms often come with low fees, making the game accessible.
So, forget the age-old myth that investing is only for the elite. Small, persistent investments are not just a ‘poor man’s strategy’; they’re a realistic, achievable route to wealth for just about anyone. By consistently contributing, even in modest amounts, you’re setting yourself on a path that can lead to genuine, life-altering financial freedom.
The ”Micro-Investing” Ladder: a Three-Step Guide
This guide is short, sweet, and easy to implement. Don’t wait, don’t waste time and don’t lose on compound interest – you already know how powerful that is.
Here it is!
Start investing small amounts of money that you won’t miss. Don’t fall into the trap of thinking that your budget is so tight there is nothing left.
Look carefully at what you spend. Are there any subscriptions you don’t use? Cancel them, and you may be surprised you have £20-£30 monthly.
How much do you drink? Ten pints a week? An average of £4.07 per pint is £40.70 per week and over £160 monthly. Cut your drinking by half, and you have £80 to invest.
But let’s not be overly ambitious at the beginning – find £50 per month you waste or spend on bad habits and invest it to follow the path to financial security. Be a boiled frog and increase the monthly amount you invest gradually. Eventually, you may even look at earning more.
Make it a habit
Make combing your accounts for further savings a monthly habit.
And set up a direct debit to your investing account for a set monthly amount. Every month without fail!
Reinvest the interest
Set your investing account to reinvest the interest and dividends. Don’t draw down.
Because stuff happens, keep an easy-access cash cushion to meet eventualities – some call it an ‘emergency fund’, but I prefer a ‘freedom fund’.
Why is the “Micro-Investing Ladder” Superior to Other Investing Approaches
The “micro-investing ladder’ is superior to other investing approaches because:
- It is low-risk, and in the long run, you will end up wealthier than you started.
- You don’t need a substantial initial sum and can start investing with as little as several pounds. Just start!
- It promotes discipline and financial literacy, which overflow to the rest of your life.
Yes But…Let’s Address Your Objections to Financial Freedom the Slow Way
At this stage, I expect you have some objections to the “micro-investing ladder” path to financial security espoused here. I understand, and it is only human nature to be sceptical. Here is my response to three key objections. (If you have different objections or questions, leave me a note in the comments.)
- “It’s too slow”: Yes, this approach will take longer than the other avenues to wealth. Remember that you are trading short-term stress and risk for long-term financial stability. Moreover, you can apply this approach to only a part of your investment portfolio.
- “It won’t make you rich”: If you think of yachts, champagne, and private jets, you are correct. This approach is not going to make you rich. However, this approach can help you build financial security and a sound basis for your life aspirations.
- “It’s not exciting”: Correct. This approach to wealth building is not exciting and is not supposed to be. Your thrills should come from financial freedom and planned games, not the investment process.
Take the Leap: Your Spare Change Path to Financial Security Awaits
Unlock the path to financial security by implementing the ‘micro-investing ladder’ approach to wealth-building. It doesn’t matter whether you want to pay off your debt or to build more investments.
This is not a passing fancy; it’s a revolution that demystifies investing, making it accessible to everyone.
Why wait to make large, intimidating investments when you can start small and reach remarkable financial heights?
The power to secure your financial future is quite literally in your pocket. Take the first step today and celebrate in a decade.