When it comes to investing, many people assume they need a large amount of money to get started. In reality, even a small monthly contribution could make a significant difference to your finances over the long term.
For some people, £100 a month might not sound like a realistic amount to find. But when you look at everyday spending, it could be possible to make small changes that allow some money to be put aside for the future.
The important thing is not necessarily how much you start with. It is starting somewhere and giving your money time to potentially grow.
Why Investing Doesn’t Have to Be Complicated
Investing can sometimes sound intimidating. People may immediately think about individual shares, cryptocurrency, gold or trying to decide which companies they should invest in.
But investing does not have to mean choosing individual companies or attempting to predict which asset will perform best.
If you are employed and have not opted out of automatic enrolment, you are already likely to be investing through your workplace pension. Your pension contributions are invested within a pension wrapper, meaning you may already be participating in investment markets without actively choosing individual investments yourself.
The important question is whether you have the right financial foundations in place and whether you are putting an appropriate amount towards your longer-term goals.
That could include pension contributions, investments outside a pension or a combination of both.
What Could £100 a Month Become Over 20 Years?
Consider what happens if you invest £100 every month for 20 years.
Without any investment growth, you would have contributed £24,000.
But if that money were invested and achieved an average long-term return, the potential value could be considerably higher.
For example, assuming an average annual return of 5%, £100 invested each month for 20 years could grow to around £41,000. At an average annual return of 7%, it could be around £52,000.
These figures are illustrations rather than guarantees. Investment returns can rise and fall, and the actual outcome will depend on factors including investment performance, charges and how long the money remains invested.
The key point is that the potential growth comes not just from the money you contribute, but from the returns generated on those contributions over time.
How Compound Growth Can Build Your Wealth
One of the reasons long-term investing can be powerful is compound growth.
In simple terms, when an investment generates a return, that return can remain invested alongside your original contributions. Future growth can then be generated on both the money you originally invested and previous investment returns.
The longer this process continues, the greater the potential effect can become.
This is why starting earlier can be so valuable. You are not simply giving yourself more time to contribute; you are also giving potential investment growth more time to compound.
However, investment returns are not guaranteed, and investments can fall as well as rise in value.
The Cost of Leaving Your Money in Cash
Cash has an important role in financial planning. Emergency savings and money needed in the short term may be better held in an accessible savings account rather than invested.
But money intended for longer-term goals is a different consideration.
Inflation reduces the purchasing power of money over time. Even if your savings account pays interest, the important question is whether that interest is keeping pace with inflation.
Imagine putting £100 a month aside for 20 years and simply accumulating the contributions. You would have £24,000.
That sounds substantial today, but the purchasing power of £24,000 in 20 years could be significantly lower because the cost of goods and services is likely to have increased.
Long-term investing carries risk, but it can provide the potential for your money to grow at a rate that outpaces inflation over extended periods.
Why Delaying Investing Could Cost You More
One of the biggest issues with delaying long-term investing is that the amount required later may become significantly larger.
If you start with £100 a month and continue for decades, you have time on your side.
If you wait several years before starting, you have fewer years in which to contribute and fewer years for potential investment growth to compound.
That does not mean you should panic if you have not started yet.
The important message is that it is better to start with an affordable amount than to wait indefinitely for the perfect time or for your finances to become completely comfortable.
Even someone approaching retirement age can potentially benefit from reviewing their finances and making appropriate changes.
Small Increases Can Make a Big Difference
Starting with £100 a month does not mean you have to stay at £100 forever.
One simple approach is to review your contribution regularly and consider increasing it when your circumstances allow.
For example, you could review your finances every year and increase your contribution by a percentage that broadly reflects inflation or your increased income.
An increase from £100 to £104 a month might not feel significant today, but repeating small increases over many years can make a difference to the amount eventually invested.
You can also look at your wider spending.
Review your regular bills, subscriptions, insurance costs, and discretionary spending. The aim is not necessarily to cut out everything you enjoy, but to consider whether a small proportion of your income could be redirected towards your longer-term financial goals.
Time in the Market Matters
Investing is not necessarily about trying to identify the perfect moment to buy and sell.
Markets rise and fall, and even experienced investors cannot consistently predict what will happen next.
For long-term investors, consistency can be more important than attempting to time the market.
Regular contributions mean you continue investing through different market conditions. Sometimes markets will be performing strongly and sometimes they will fall.
The important consideration is whether your investments are appropriate for your goals, timescale, and attitude to risk.
What Could Investing Mean for Your Future?
The potential benefits of investing are not simply about having a larger number on a statement.
Having greater financial resources later in life could give you more choices.
It could potentially allow you to retire earlier, reduce your working hours, provide financial support to children or grandchildren, or simply feel more comfortable about meeting your future living costs.
Planning for retirement is particularly important because people are living longer. Your retirement savings may need to support you for many years after you stop working.
Putting off the issue can create a situation where you feel as though you are constantly trying to catch up.
Starting earlier, even with a modest amount, can help give your future finances more time to develop.
It is Never Too Late to Start
There is no perfect age to begin investing.
If you are in your 20s or 30s, starting early gives your money potentially decades to grow.
If you are in your 40s, 50s or beyond, it is still worth reviewing what you have and considering what changes you could realistically make.
The first step could be as simple as reviewing your current expenditure and identifying whether you could redirect 5% or 10% of your income towards longer-term goals.
You could also review your existing pension contributions and consider whether they remain appropriate.
The important thing is to avoid the mindset that there is no point starting because you have not started earlier.
There is always an opportunity to review your finances and make a change.
Even £100 a month can potentially become much more over time when it is invested and given the opportunity to benefit from compound growth.
The earlier you start, the more valuable time can become, but it is never too late to take that first step.
Rebecca Robertson in the Accelerating Your Wealth podcast.
