If you would like to invest but think you don't have the money, think again. The beauty of investing is that unlike purchasing a car or even a home, it doesn't require a significant down payment. But most people know the old adage of paying yourself first is easier said than done. The cost of living, as well as the unplanned expenses that always seem to pop up can make anyone feel that saving to invest is an uphill battle—if not a futile one. But there surely must be a way to do it without putting a dent in your finances, right? Don't worry, we have you covered. Here are some thoughtful ways to put away extra cash without breaking the bank, which will provide you with the opportunity to start investing.

Key Takeaways

  • Saving and investing is a commitment, but it doesn't have to be painful. 
  • Consider signing up for an automatic savings plan, and put away bonuses and income tax refunds.
  • Do your research about 401(k) plans including those sponsored by your employer.
  • Don't forget about new investment models like robo-advisors and real estate crowdfunding.

Anyone Can Save

Investing is great if you have plenty of extra money lying around, but what if you don't? Saving and investing is a commitment, but it doesn't have to be painful. A lot of us put them off because we may not think we have enough money or because retirement is too far away to think about. Others have a lot of debt to shoulder. If the latter is the true for you, you may want to consider paying it off, or at least putting a big dent into it. Putting money away won't pay much interest, especially if you have loans and credit cards that are racking up interest to the tune of 15% to 29%. Mind you, putting regular lump sums toward your debt may still allow you to put something away—even if it's just for a rainy day and not for your retirement.

If you have a lot of debt, you may want to consider paying it off or at least cutting it down significantly.

One of the things you need to have—other than money—is discipline. Start by making a budget and setting your goals. Putting everything down on paper and visualizing it can help keep you on track and prioritize. Once you have your income and monthly obligations down, you can figure out how much you can reasonably afford to set aside each month. Even if you have as little as $25 each month initially, it's better than nothing.

Every Penny Counts

Consider an automatic savings plan, a savings program offered by many banks and financial institutions. One popular example is Bank of America's Keep the Change Program. The best thing about it is you don't have to do much, other than your routine banking. The bank rounds every purchase—usually made with your debit card—to the nearest dollar, depositing the change daily into your savings account for free. It may seem small, but it's certainly a meaningful way to start or to add to your investing pool. Aside from matching a small portion of your savings, institutions like Bank of America send you a statement at the end of the year, letting you know how much you've saved.

Bonuses and Refunds

Another painless way to save is to use employee bonuses you receive throughout the year as well as any tax refund for investing instead of splurging. Since these are generally unexpected, you won't feel the pinch if you put them away. It's a great way to add to your investment funds and one that will reward you down the road. Just don't make any immediate plans with this extra windfall, otherwise you won't want to put it away.

Here's one more source to consider. Do you get cash back from a credit card or loyalty program? Since this is money you're not actually earning from your job and it is extra—meaning it won't affect your monthly budget if you put it aside—you may want to consider transferring that to a savings account as well.

401(k) Plans: Invest but Beware

Participate in your employer's 401(k) plan, especially if it includes a match, but proceed with caution. Take time to be an intelligent investor and read the prospectus. If your 401(k) hasn't beaten the S&P 500's rate of return, then you might be better off investing on your own.

It is startling to discover the number of mutual funds that don't consistently beat the S&P 500—essentially an index of the 500 largest companies in America. Researching your options takes only a few minutes, but it is a critical step if you want to maximize your returns. Take time once a year to reassess your plan to ensure that your fund meets your investing goals. Past performance is a good predictor of the future but remember, it's not always a guarantee.

Many financial websites have some excellent resources where can you look up the performance of an individual stock, as well as search for the performance of specific mutual funds. Keep in mind that a fund's performance is only one important part of the equation. Watch out for excessive administrative fees.

In 2006, a flurry of lawsuits over 401(k) plan fees prompted an investigation by a congressional committee into fee disclosure. The Department of Labor offers useful information about the average cost of fees and a checklist you can use to evaluate your current plan.

No 401(k) Plan?

More than 25 million Americans work for small employers that offer no 401(k) plan, but that doesn't mean they can't successfully save and invest on their own. Here are two good alternatives:

Exchange Traded Funds (ETFs)

If the idea of picking your own stocks scares you and you don't have the funds to hire an investment advisor, don't worry, there is a solution. You can purchase specific exchange-traded funds (ETFs), which are similar to index mutual funds. One major difference is that they trade more like stocks. This is important, because during the 1990s, the S&P 500 provided an annualized return of 17.3%, compared to just 13.9% for the average diversified mutual fund. Therefore, instead of purchasing all 500 stocks on your own, you can purchase an ETF—like the SPDR Trust—that attempts to mimic the performance of the S&P 500 without the hassle and costs that come with purchasing 500 individual stocks.

ETFs not only provide the opportunity to own a single investment that encompasses a large number of stocks, but it also gives you a chance to diversify your portfolio. There are many ETFs to choose from, just like mutual funds, so it should be easier to find an ETF that represents the market goals you're looking for.

Researching ETFs and their performance is easy to do with the number of financial websites available to the average investor. You can search each ETF by entering the ticker symbol, and the information will be readily available to you in bite-sized pieces.

Choose Your Own Mutual Funds

Hundreds of mutual funds will allow you to make a small initial investment of $500 or even less. Morningstar’s mutual fund screener reveals 200 different mutual funds that will accept a $500 minimum deposit. In addition, there are nearly 300 mutual funds from TD Ameritrade that only require a $100 minimum investment. More than 250 funds have no minimum requirement at all.

Let a Robo-Advisor Invest for You

Robo-advisors were created to make investing as simple and accessible as possible. These are automated financial planning platforms that are driven by algorithms. There is generally little to no human contact. These companies collect your financial information and goals, offer advice, then invest your assets automatically. Their automated intelligence continues to track your investments in the background and enables you to pay lower fees.

Other Considerations

Once you're ready to invest, check out low-cost online brokers. A good place to start would be Investopedia's list of the best discount brokers.

Government securities are another option. But you won't get rich with these vehicles, even though they're a great place to park your money until you're ready to put your money into something riskier. One of the best things about them is that you can earn some interest before you decide to move your money elsewhere. Purchase securities through the U.S. Treasury’s bond portal Treasury Direct. Federal government securities, with maturities of anywhere from 30 days to 30 years are available in denominations as low as $100.

Real Estate Crowdfunding

There were times when investing in real estate was a lofty ideal for the average investor. But not anymore. Real estate crowdfunding is a new style of investing that raises capital for real estate projects and investments. Investors park their money with a crowdfunding company—usually online. That company then invests your cash into a series of real estate projects including hotels, medical and care facilities, and condominiums. You may be able to find companies that have low initial investments. By going through crowdfunding, you can still reap the rewards of investing in real estate, while cutting out the headache and other expenses related to property ownership.

The Bottom Line

With a little effort and diligence, you can invest. And do so successfully. Famed investor and hedge fund manager Jim Cramer stated in his book, "Real Money" that he started investing with only a few hundred dollars. The lesson here is that isn't the amount that matters—it's just getting started. That said, using some of the tips in this article may give you an opportunity to turn pennies into shares in order to save for your retirement.

After all, great oak trees grow from small acorns, and starting even with a small investment allows you to grow your portfolio into something great as well. As a young investor, you have time on your side, so remember to start early with a little to end up with a lot in the future.