Dear SmallIvy,

Should poor people avoid investing in the stock market?

Thanks,

Caleb

 

Dear Caleb,

There are three main ways to increase your income. The first is to start a business and grow that business. This is probably a difficult thing for an impoverished person to do since it often takes resources, bank loans, and connections. Still, there might be businesses such as disassembling junk cars and selling off parts on the internet, mowing lawns, and dog walking that you might be able to start with minimal investments. You can also do these types of things as side jobs while still working at your primary job. Once you have enough income from side jobs to turn into a business, you can go full-time and leave your old job.  For more ideas on side jobs you can do, check out Side Hustle: From Idea to Income in 27 Days or 21 Side Hustles You Can Start Now.

The second is to gain experience at your job and either move up in your company or move to better jobs at other companies. This starts by showing that you are reliable and can handle responsibility. More than just being a hard worker (which is important) is to seek to learn new parts of the business and new things that you can do. Showing that you are willing to both take on responsibility and to learn will motivate many employers to mentor you and move you up in the company. Finding ways to spend time with upper management is also useful since it lets them know who you are and what your skills are.  To learn how to become a better worker and move up in your career, check out Go-Giver, The: A Suprising Way of Getting More Than You Expect by Bob Burg and The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change.  Both of these are great books on improving yourself to do better at work, and thereby make more money.

The third way is to learn skills that make you more productive and valuable as a worker. Many people go to college for this reason (although some don’t pick majors that make them more employable), but a trade school is another great path to increase your earning power. Getting on-the-job training from a coworker is another way to gain skills.

Once you have increased your income, you need to create a budget with all of your expenses, including those that you may only pay a few times per year like car insurance, and verify that you can cover everything and still have some money left over. Then, build up an emergency fund, which is around $6000 to $10,000 in a savings or money market account. This will ensure you have money available to take care or car repairs, medical bills, and other issues that might occur.

Once you’ve gotten to the point where you can cover your expenses and have a little left over each month, plus have some money tucked away in an emergency fund, you’re ready to start investing. If you can put a couple of hundred dollars into a mutual fund each month, you’ll start to build up financial security and increase your income. That is the path out of poverty.  Checkout SmallIvy Book of Investing: Book 1: Investing to Become Wealthy to learn how to invest.  You can also check out The Bogleheads’ Guide to the Three-Fund Portfolio, which provides a really simple way to invest using just three mutual funds.

SmallIvy Book of Investing: Book 1: Investing to Become Wealthy

 

To learn more about how to create a budget, reduce expenses to free up cash for investing, and then put your money to work to build your net worth, check out the book, FIREd by Fifty. It discusses the steps in detail of how to become financially independent over the period of a few decades.

Happy Investing,

SI

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.