Start Small: How to Build an Investing Habit
Myth: "You need a large sum to start investing."
Many people think this way and wait: for a bonus, a pay rise, a better year. In the meantime, they invest nothing.
The truth is that at the start, the amount matters less than the habit. Someone who puts in a little, steadily, month after month, usually gets further than someone who keeps putting off the decision. On top of that, the earlier you start, the more time your money has to grow through compounding: today's gains go on to produce gains of their own, year after year.
Why the habit matters more than the amount
A habit is something you do without thinking it over every time. Like brushing your teeth: you don't decide every morning whether to do it.
Investing works the same way. If you have to decide every time "do I invest this month or not?", there will always be reasons to put it off. Once it becomes a habit, the decision is made only once.
There's another advantage: a small amount lets you learn without pressure. Once you start using a broker account, you get familiar with terms you'd only seen in articles until then: buy order, fee, return, portfolio value.
You start to understand what's happening with your money, you see what a month with drops looks like and how you feel about it. Step by step, you gain confidence in what you're doing. It's much easier to go through this with a small amount than with years of savings.
And small amounts add up. What seems insignificant in a month becomes a meaningful sum after a few years, especially if you increase it along the way.
A small amount a month? It seems too little to matter.
For the final total, maybe. But at the start, the amount isn't the most important thing.
Then what is?
Making it a habit. That's the hardest part and the most important one. You can increase the amount any time, but a habit formed early works for you for years.
So first I build the habit, then I make it bigger.
How to build the habit
- Pick an amount you won't feel. Small enough not to upset your monthly budget. If you feel it too much, you're more likely to give up.
- Tie it to a fixed moment. Payday is the best moment: money goes to investing first, then to spending.
- Make it automatic. A scheduled transfer or an automatic monthly investment takes the decision out of the equation. Investing monthly is explained in DCA: Dollar-Cost Averaging.
- Increase the amount gradually. For example, every time your income goes up, increase the amount you invest by part of the difference. That way you don't feel a loss, because you're not giving up anything you already had.
- Don't judge yourself by one month. Some months will have drops. A habit is measured in years, not weeks.
How much time it takes: two options
There are several ways to put your monthly investing on autopilot. They differ in how much time they ask of you at the start and how much control they leave you.
- You choose what to buy. At the start, you take some time to decide which instruments to invest in, for example individual shares, bonds or ETFs, and in what proportions, depending on how much risk you accept. Once that's settled, the monthly investment can be automated with your broker. You have full control and, usually, lower costs, but you need a little time at the start and a check-in now and then.
- You spend as little time as possible. Mutual funds and robo-advisors usually only ask you to choose your risk profile, and the rest is managed for you. It's the simplest option, but it comes with its own costs and less control over what you buy. Separate modules on each will be coming to Lonifi. If you want to know when they're out, you can subscribe on the Updates page.
Neither option is right for everyone. What matters is choosing one you can stick with.
The same principle works for learning: a few minutes regularly, not whole hours once a month. Lonifi lessons are designed that way, short enough to listen to on your commute, during a break or in the evening.
If you're still wondering whether it's the right time to start, read Why You Keep Putting Off Investing.
In short
You don't need a large sum to start. You need a small amount, a fixed moment and, ideally, an automatic transfer. You can increase the amount over time. The habit is what makes the difference in the long run.
On Lonifi you learn the basics in short lessons where Fred explains things to Tom step by step. Start with What is the stock market?.
Lonifi content is educational and is not investment advice. The value of investments can go down as well as up.
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