Can You Invest If You Make Minimum Wage?

I want to help college students and young adults get started investing.  It's the biggest reason why I started this site, and wrote The College Student's Guide to Investing.  But I was recently asked a great question by a local college student - can you start investing if you make minimum wage?

You see, a lot of college students and young adults make minimum wage while they're in school (or at least something close to minimum wage).  Many work jobs in retail, in restaurants, or other part-time gigs while going to school.

Before you think this is a "bad take", this article is really focused on young adults getting started investing - 16 to 24. According to the Bureau of Labor Statistics, only 1% of Americans over age 25 still earn minimum wage.

So, given the amount that individuals on minimum wage bring home, can they get started investing? It's tough, it won't apply to everyone, but there are ways it can be possible.

Finding Money to Invest on Minimum Wage

Let's assume you're a college student making $8 per hour and you work 24 hours per week.  That would give you about $650 per month to live off of after taxes.

Note: Federal minimum wage is currently $7.25 per hour, but it does vary by state, with some states significantly higher.

If you're renting a room, you're probably going to pay about $300 per month, including utilities.  You're probably going to have a cell phone, which will run you another $50, then you're going to need to eat - say another $200.  That puts you at about $550 per month.  If you need transportation, you're going to pay another $50 for gas or for public transportation (but if you live on campus or near campus, you may not need this).

Either way, there is the potential that you will have about $50 to $100 left over each month that you can save and invest.

However, another way to find money to save or invest is through gifts.  A lot of college students just receive cash gifts from parents and grandparents for their birthday and Christmas.  This little extra bonus can also be a great way to invest. 

If You're Having Trouble Finding Extra Money on Minimum Wage

However, you could be cutting it really close and not have any extra in your budget each month to save or invest.

If that is the case, you could also consider working more during breaks: Spring Break, Summer Break, Winter Break.  If you work in retail or in a restaurant, a lot of these types of businesses are increasing their hours during these more peak times, especially during the Holidays.

If you work for 35 hours per week at $8, that suddenly boosts your monthly income up to about $950 per month after taxes.  That's an extra $300 per month.

Another thing to consider is cutting back on expenses.  During these times of the year, moving back home with your parents can be a great way to save on rent.  So not only can you increase your income, you can lower your expenses.

How To Get Started Investing on Minimum Wage

Once you've saved up, have an emergency fund, and are determined to get started investing, there are some easy ways to get going.

First, I'd highly recommend you see if your employer offers a 401k plan.  Many big retail companies offer them, even to part time employees. Also, if you work at some universities (even at the bookstore), you may be able to invest in a 403b from the university. The great thing about these plans is that the company sponsors typically offer a matching contribution. So, even if you only invest 5% of your pay, you get a matching bonus from your employer.

Think about this. If you're making $8 per hour and only working 24 hours per week (first scenario from above), you'll take home about $650.  However, if you contribute 5% to your 401k, you'll invest about $38 per month into the account.  However, since the money is pretax, you save some on taxes.  You'll actually only lower your take-home pay amount to about $635.  Plus, if your employer matches the contribution, you can actually get an additional $38 added to the account, for a total of $76 per month, or $912 per year.  Not too shabby for "just getting started".

Related: 401k Contribution Limits

Investing on Minimum Wage Isn't For Everyone

Investing while making minimum wage is tough.  The story above comes straight from a college reader who questioned whether it could be done.  However, if you're supporting a family on minimum wage, it will be a lot more difficult (or impossible) to get started investing.

I would point you to your employer once again - 401k plans are a great way to save for retirement and hopefully get a matching contribution from your employer.  Even if you're on minimum wage, NOT taking advantage of an employer match is essentially leaving money on the table.  You may not think you can do it, but I think most people can budget at least that amount.

What are your thoughts?  Can you invest if you make minimum wage?