For many people, not having extra money is the most common and seemingly insurmountable barrier to investing. When you're carefully managing your finances from one paycheck to the next or trying to navigate the unpredictable nature of variable expenses, the mere thought of setting aside money for investments can feel like an impossible dream. However, here's an important truth that might surprise you: building wealth doesn't require a large initial sum of money or a hefty salary.
I intimately understand this hesitation because I once stood exactly where you might be standing now. Time after time, I convinced myself that my limited spare euros would be better spent elsewhere, always finding what seemed like more pressing or immediate needs for those funds.
This widespread hesitation to invest has deep psychological roots, primarily stemming from a well-documented phenomenon called loss aversion. Loss aversion means that people feel the pain of losing money more intensely than the pleasure of gaining the same amount. Fascinating research in behavioural economics has demonstrated that losses hurt about twice as much as equivalent gains feel good. To put this into perspective, losing €100 creates the same emotional impact as the positive feeling you'd get from gaining €200.
Fear of loss prevents people from investing at all, especially beginners who are just starting their financial journey. This powerful psychological barrier explains why so many individuals choose to keep their money in low-interest savings accounts (perceiving them as "risk-free" options), even though this decision means watching inflation gradually diminish their purchasing power over time.
While taking those first steps into the world of investing might appear daunting or overwhelming, it's crucial to understand that you don't need to start with thousands of euros to begin making meaningful progress toward your financial independence. The path to building lasting wealth begins with something much more fundamental: developing disciplined budgeting habits.
Let me guide you through a practical, step-by-step approach to effective budgeting that will help you launch your investing journey, regardless of how modest your initial contributions might be.
Step 1: Understand Your Cash Flow
Before embarking on your investment journey, it's absolutely crucial to develop a comprehensive understanding of your monthly financial flows - both the money flowing into your accounts and every euro flowing out. This foundational step creates the clarity you need to make informed investment decisions:
Track your expenses: While there are numerous sophisticated paid apps available for expense tracking, such as YNAB and PocketGuard, these tools actually work against our primary objective of maximising investment capital. Instead, embrace a more cost-effective approach by utilising a basic Google Sheet or traditional paper notebook to meticulously document every single expense throughout an entire month. This detailed tracking process will illuminate surprising patterns and reveal exactly where your hard-earned money finds its final destination.
Identify savings opportunities: Conduct a thorough audit of your monthly recurring expenses and critically evaluate each subscription service, membership, and regular purchase. Look for opportunities to eliminate or reduce costs from streaming services you rarely watch, delivery memberships that might not be providing adequate value, or personal habits like smoking that impact both your health and wealth. However, exercise careful judgment with beneficial expenses - for instance, maintain your gym membership if you're regularly using it to stay healthy, as the ancient Romans wisely observed with their saying "mens sana in corpore sano" (a healthy mind in a healthy body). The key is to only eliminate expenses when you're absolutely certain they're not contributing meaningful value to your life.
To illustrate the power of this approach, consider this practical example: eliminating just one seemingly minor €9.99 monthly subscription translates into €120 of investable capital annually - and that's before considering any potential investment returns on that money.
Real-Life Example: Marta, a junior designer earning €1,800/month in Berlin, tracked her spending and found she spent €200/month eating out. She reduced that to €100 by meal-prepping, freeing up €1,200/year.
Step 2: Set Clear Financial Goals
Begin your investment journey by carefully defining and documenting your financial objectives. Having well-articulated goals will not only guide your investment decisions but also help maintain focus during market fluctuations:
Short-term goals (1-3 years): These immediate objectives include building a robust emergency fund to cover 3-6 months of expenses, planning for upcoming holidays or travel experiences, or saving for essential purchases like a new laptop or professional equipment. These goals typically require more conservative investment approaches to preserve capital.
Medium-term goals (3-10 years): These intermediate milestones encompass significant life investments such as making a down payment on your first home, funding further education or professional development programs, or accumulating startup capital for a business venture. These goals often allow for a balanced investment approach that combines growth potential with reasonable risk management.
Long-term goals (10+ years): These extended horizon objectives focus on substantial wealth building, including preparing for a comfortable retirement, creating generational wealth, or establishing passive income streams. These goals typically permit more aggressive investment strategies that can weather short-term market volatility.
Tip: To maximise your chances of success, structure each goal using the SMART framework: make them Specific (clearly defined), Measurable (trackable with numbers), Achievable (realistic given your resources), Relevant (aligned with your life plans), and Time-bound (with clear deadlines and milestones).
Step 3: Automate Your Savings
Make investing a non-negotiable part of your monthly financial routine by giving it the same priority as your basic living expenses:
Set up automatic transfers from your primary checking account to your designated savings or investment accounts right after payday. This eliminates emotional decision-making and ensures you invest consistently.
Start with a realistic amount—even €25/month is enough to begin your investment journey. As you earn more through raises, bonuses, or side income, gradually increase your monthly investments. Try to boost your contribution by 5-10% each year to accelerate your wealth building.
Trick: Think of your investment contributions as essential expenses, just like rent, utilities, and insurance. When you treat investing as non-negotiable rather than optional, you'll naturally adapt your spending habits. Better yet, money that's automatically invested never feels like money you could have spent elsewhere.
Real-Life Example: Alex, a freelancer with variable income, set up an automatic monthly transfer of €50 to an ETF savings plan, treating it as an essential expense. Despite ups and downs in both the market and his income, his consistency built an investment portfolio worth over €2,000 in just 3 years, proving that steady, automated investing works in any market condition.
"Someone's sitting in the shade today because someone planted a tree a long time ago."
Step 4: Choose Simple Investments
Keep your investment strategy simple. The most successful investors maintain a steady market presence rather than trying to predict perfect entry and exit points. History shows that patient, long-term investors typically outperform those who try to time the market:
ETFs (Exchange-Traded Funds): Perfect for beginners due to their simplicity and built-in diversification. These investment vehicles track broad market indices, giving you instant exposure to hundreds or thousands of companies. For a solid foundation, consider globally diversified ETFs or those tracking major indices like the S&P 500—popular options include VWCE for worldwide exposure or VUSA for U.S. market focus.
Index Funds: An excellent choice for investors who prefer a hands-off approach. These passive investments offer broad market exposure with minimal management fees. Their straightforward nature makes them ideal for consistent, long-term wealth building without constant monitoring.
Fractional Shares: Modern investment platforms like eToro have made investing more accessible by letting you purchase portions of expensive stocks. With as little as €10, you can own a slice of premier companies like Apple or Amazon, making diversification possible even with a modest budget. On eToro, you can also copy portfolios from popular investors—essentially having an experienced investor actively manage your portfolio
We also have our portfolio on eToro as a popular investor, so you can join the platform using this link
And you can copy my portfolio here:
Tip: When building your investment portfolio, consider a "core-satellite" strategy: put 80% in stable, broadly diversified ETFs as your foundation (the core), and 20% in potentially higher-reward investments like individual tech stocks or cryptocurrency (the satellites). This approach combines steady, long-term growth with opportunities for enhanced returns through calculated risk-taking.
Step 5: Monitor, Adjust, and Reinvest
Regular monitoring of your financial strategy is essential for long-term success. Schedule periodic reviews of your budget and investment performance:
Review your spending patterns and adjust your budget quarterly. Focus on finding new ways to save while ensuring your financial goals align with your current lifestyle.
Conduct annual portfolio rebalancing to maintain your target asset allocation. This helps manage risk and can improve returns over time.
Maximize growth by reinvesting all dividends and directing extra income (like freelance work, sales of unused items, or holiday bonuses) into your investment accounts.
Real-Life Example: Sofia, a teacher, implemented a strict dividend reinvestment strategy with her ETF portfolio. This disciplined approach to compound growth resulted in an additional €1,000 in investment gains over a 5-year period, demonstrating the power of reinvesting rather than spending investment income.
Extra Tips and Tricks for Investment Success:
Use windfalls wisely: When unexpected money comes your way—whether it's a tax refund, birthday gift, work bonus, or inheritance—make a commitment to invest at least 50% of it. This strategy helps accelerate your wealth-building journey while still allowing you to enjoy some immediate benefits from the windfall.
Join investment communities: Connect with like-minded investors through platforms like Reddit's r/eupersonalfinance or Financial Twitter (FinTwit). And of course, join our newsletter and share it with friends. These communities provide valuable peer support, share market insights, discuss investment strategies, and help keep you accountable to your financial goals. Always verify information independently and maintain a healthy skepticism toward investment advice from social media.
Track your net worth: Regular monitoring of your financial progress is crucial for long-term success. Whether you prefer the simplicity of a spreadsheet or the advanced features of apps like Mint or Portfolio Performance, choose a tracking method that you'll stick with consistently. Update your numbers monthly to maintain a clear picture of your financial growth and identify areas for improvement.
Remember: Consistency Beats Intensity
The path to financial success isn't about making dramatic moves or timing the market perfectly—it's about maintaining a steady, disciplined approach to investing. By consistently contributing to your investment accounts, even in small amounts, you'll harness the incredible power of compound growth over time. This patient, methodical strategy allows your money to work harder for you, building upon itself year after year.
Don't wait for the "perfect" moment or until you have a large sum to invest. Start budgeting today, no matter how modest your initial contributions may be. Your future self will be grateful for every small step you take now toward building lasting wealth. Remember, the best time to plant a tree was twenty years ago—the second-best time is today.
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