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.
So, given the amount that individuals on minimum wage bring home, can they get started investing?
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.
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, 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. (Bonus: check out Should You Accept Money From Your Parents)
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“.
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 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?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Great points. I think investing at minimum wage is about priorities, and often is even about finding ways to big for more money. We’re interviewing Jackie Beck for our podcast Monday, and she has a new book with many ways to save. Some of them are as easy as raking leaves. Maybe that extra money is what you save while you live on the minimum wage job.
Good points Robert! I think it would be difficult and might require some creative thinking, but I believe it could be done. Like Joe said, it would have to come down to priorities and someone having their head on right to see that it would benefit them in the long run. Investing that $50-100/month will seem like a lot, but will do wonders if they were to start.
Sure the math works but you have to dive into the mentality of that college student from past experience. $50 = 16.7 cheap beers at a local pub with buddies or 30 beers if you were buying them in six-packs. You’ve got no parents around, tons of great friends and all the time in the world. I’m trying to get people to save as well but there is plenty of time in the future to act like an adult and save. As long as you stay within your means, I say party on!
Of course you can. It start with just a few dollars, but it will increase as your pay increases. This is how you can get out of a poor situation.
Don’t forget about making some cash on the side! There’s always some kind of side hustle you can do to make an extra 50 bucks each month to invest. I’m hoping to make enough off of my website that i can use all of the money I make from it to get a start on investing. Great advice I love reading about things like this, so that i’m a step ahead of the game for when I go to college next fall.
Start small, that’s a nice way to get your foot in the door. Even just investing a very small amount of money, like a few bucks, is better than nothing. Why? Because you committed, and put your best foot forward to at least make it important to prioritize investing.
what do you suggest people with part-time jobs do? The recent implantation of the Affordable Healthcare Act has left part time employees like myself only a maximum of 25 hours to work in a week, but nobody ever get that many hours. I am a student & I’d really like to start a retirement savings plan. I am nearly 30 & have no savings of any kind. Suggestions, advice and anything in between would be greatly appreciated.
The best advice is budget so that you can try to find $20 or $40 per month. Every little bit helps. As mentioned above, maybe start a side hustle to earn a little bit on the side that you can save for retirement or invest.
Thanks for the quick response. I have been looking for side jobs for the past year, it’s mostly clean up jobs, which oddly enough I love doing the downside is there aren’t too many opportunities where I live to do this. I’ll definitely put more effort into budgeting maybe I’ll start couponing or something. Thanks again P.R.
I think you need to focus on paying yourself first. Unless you have that mindset, you can often find an obstacle to investing no matter what your income, minimum wage or not.