How To Invest $500 Per Month

What's up, you guys? It's great here! So, I realized in many of my videos I talked about investing ridiculous sums of money or putting 20% down to buy real estate, which could work out to be like six figures in cash. But I wanted to take a different approach with this video and talk about how to invest an amount that I'm sure many of you would be able to make happen, and that would be how to invest $500 a month.

Of course, if we break it down according to my math, that works out to be $16.66 every single day. But anyway, sixteen dollars a day might not seem like a lot of money right now, but the thing is it really adds up over time. It's actually a large enough amount of money that you could secure a pretty comfy retirement if you start doing this in your early 20s and just stay consistent with this over time.

So, let's go over the best ways to invest $500 a month! Smash that like button if you haven't done that already, and eventually make some Lambo money!

First, let's begin here. It's really important to understand that just going and investing $500 on its own isn't likely to amount to much money unless you just happen to go and buy Bitcoin with it in 2012. But besides that, for this video to really work, you need to be investing $500 a month consistently without stopping, and ideally starting as soon as you possibly can.

The reason you want to start investing now is because you'll have the power of compound interest on your side. That is, your money ends up making you more money, and that money ends up making you more money, which ends up making you more money, which ends up making you more money. It's kind of like a snowball that's just rolling down a hill, collecting more and more snow and getting bigger and bigger as it picks up speed. That's basically also how your money works.

The sooner you begin to invest, the higher up the hill you begin rolling that snowball down, allowing it to accumulate more snow and grow even bigger by the time it hits the bottom. Except the snow in this scenario is actually money, if that makes sense.

Consider this: if you invest $500 a month at a 7% return, you'll have two hundred and sixty-three thousand dollars in 20 years. But if you continue investing at $500 a month for just another ten years after that, you will have basically doubled your money with a balance of six hundred and six thousand dollars. And if you keep investing that extra $500 a month for just another ten years after that, you will have more than doubled your money with about 1.2 million dollars.

Then, at this point, even if you stop contributing $500 a month, your investments will pretty much grow at a rate of almost $90,000 a year. All of that just from investing $500 a month consistently over 40 years without stopping. So again, that's the goal, and it all begins right here.

Now, let's get into the meat and potatoes of the video. The first way to invest $500 a month is going to be maybe a little bit boring and a little bit unpopular, but this is probably the most important. That would be using $500 a month to build up a three to six month emergency fund. This is not meant to be money that you spend; it's not meant to be money that you invest. This is really just meant to be a safety net in case things hit the fan and you need some cash.

Let's just say, knock on dinosaur skull, hear that? You lose your job, or your car breaks down, or there's some medical emergency, or something happens. You have money available to you as soon as you need it. Having a three to six month emergency fund means that you're not going to have to rely on credit cards to pay your way through an event. You're not going to have to sell any investments at maybe a time where it's not the best to sell them.

You're not going to have to take on any high-interest rate debt just to get you through something. So, if you don't already have one, then $500 a month is the perfect place to start. I would recommend just putting away $500 a month in a high-interest rate savings account that preferably pays more than 2% interest until you have enough to cover three to six months' worth of your expenses. Ideally, an emergency fund is something that you want to keep completely liquid and available at any time that you need it, and keeping it safe so it doesn't fluctuate in price. Also known as, don't keep your emergency fund in Bitcoin.

Now, when it comes to me, I've been using Ally Bank and Wealthfront for my emergency fund, and I've been really happy with both of them. So, that's what I recommend. But really, the choice is up to you, as long as it pays more than 2% interest. As long as you can just find something more than 2% interest, then I would be happy. Just get at least 2%.

After you've done that, this is where we get into the fun stuff. This is where the good stuff begins, and this is using $500 a month to max out a Roth IRA. This is pretty much just a retirement account that lets you contribute post-tax money, meaning you've already paid taxes on the money that you put within this account. Then by the time you're 59 and a half years old, all the profit you've made from within that account is completely tax-free.

Here's how big of a deal this is: let's just say you open up a Roth IRA at 18 years old and you begin contributing $500 a month to it. We'll also assume that that money is going to be averaging a 7% return. By the time you're 60 years old, you will have contributed two hundred and fifty-two thousand dollars within that account over the course of forty-two years. And again, that is just five hundred dollars a month beginning at the age of eighteen.

But the thing is, because your money was invested over that entire course of time, earning a seven percent average return, by the age of sixty it will have grown to one million five hundred and eighty-three thousand dollars. That leaves you with over 1.3 million dollars worth of profit. But here's the thing, though. If you had not invested that within a Roth IRA, just put that in a normal taxable account, you will have to pay taxes on 1.3 million dollars or on the profit.

As we all know, I do not like taxes. I am NOT a fan of taxes. I do not like paying taxes, and if I could legally avoid paying taxes, then I'm all for it—legally, of course. A Roth IRA, however, circumvents the taxes that you would owe, leaving you with 1.3 million dollars completely tax-free to do with whatever you want.

Prior to then, you can always pull out whatever money you contribute to the account at any point in time without any penalty. For instance, if you contributed thirty thousand dollars to a Roth IRA over the period of five years, you can pull out that thirty thousand dollars at any point in time without any penalty or any tax on that because you've already paid tax on that.

It's just any profit that that thirty thousand dollars made—any additional money over that amount—needs to stay in the account; otherwise, you have to pay tax on it and you have to pay a ten percent penalty. As we all know, paying taxes and paying a penalty is not fun.

But in terms of this video, in a Roth IRA, five hundred dollars a month is the perfect amount to contribute and max it out each and every year. And of course, for the record, I should really mention that the Roth IRA is not the investment itself; it is just an account that you invest within. You can invest in stocks within a Roth IRA. You could buy index funds; you could buy bonds; you could buy a lot of stuff within the account. The Roth IRA is just that—you just don’t put your money in and get 7% or 80%. You have to invest within that, and whatever money within that account is what's considered tax-free.

Number three, when it comes to investing $500 a month, another possible alternative to a Roth IRA is what's called a 401(k). This is an account that you invest pre-tax money into and then you end up paying taxes later at the age of retirement, after the age of fifty-nine and a half. For example, if you're investing $500 a month into a 401(k), you're now taxed as though you've just made five hundred dollars less on your paycheck. That ends up saving you money upfront, allowing you to invest more money now than you would have left over after you pay your taxes.

But like I said, the catch here is that you end up paying your taxes later during retirement when you take the money out of the account. Now, when it comes to my perspective, the 401(k) really only makes sense in two scenarios. The first one is when your employer offers what's called a 401(k) match. This is where they match your contribution dollar-for-dollar within a 401(k) up to a certain amount.

Essentially, this just means you're doubling your money immediately, guaranteed, with no risk whatsoever. Now, the rule of thumb when it comes to doing this—and this is very important—is always do the employer match on a 401(k), no matter what. Always do it, because it's free money! You guys know I love free!

This is really important because this is basically free money. If you can't remember this one part, just get it tattooed right here on your forehead: always take the employer match and a 401(k). Just always do that! That's going to save you so much money.

Secondly, a 401(k) also makes sense if you're in a high tax bracket right now and you intend to retire in a lower tax bracket. The variable when it comes to this is that if you end up making more money in retirement, then you'll end up paying more taxes later than you would have just paid right now. And secondly, if the tax rates end up going up by the time you retire, then again, you could end up paying more in taxes.

Now, of course, all of this depends on your own unique situation and your own retirement goals. But generally, my recommendation is always take the employer 401(k) match, and then once you max that out, then go to the Roth IRA for everything else. But again, that’s just me, and this is not to be financial advice. All of this is just for entertainment purposes only. Don't listen to financial advice from a YouTuber who's filming videos in their garage on a Sunday night. That is the rule of thumb.

Now, the fourth way to invest $500 a month is another somewhat boring one, but this one could potentially be worth the most amount of money from all of this. It's by paying down high-interest rate debt. Now, hopefully none of you watching have a ton of credit card debt or have a ton of student loans at some absurdly high interest rate, or a car loan at a fifteen percent interest rate. But if you do, then spend $500 a month paying it down to nothing.

Now, here's my reasoning. When it comes to all of this, if you choose to invest your money, you should be able to see on average anywhere between a four and maybe a 12% return annually. But to be able to do that, you also take on the risk of potentially losing some money in the short term. On the other hand, paying down debt is like getting a completely risk-free, guaranteed return by paying down whatever interest rate the debt is at.

So, paying off a 15% credit card balance is basically just like getting an immediate, risk-free 15% return on your money. The same thing also applies with basically any loan that you have. Now, my basic rule of thumb when it comes to this is that if you have an interest rate above four and a half percent, then it's probably best just to pay that off because on average that's about what you would get from a broad index fund after paying taxes on it.

So, you may as well, at the end of the day, just get a guaranteed return by paying down debt than investing just to pretty much get the same thing after taxes. On the other hand, if the interest rate is below four and a half percent, then my own rule of thumb when it comes to this—my own philosophy—is basically I would rather just invest the money and then get paid a little bit more.

But anything above four and a half percent, I recommend just using $500 a month putting it towards that debt and just paying it down as fast as possible. Then, once you do that, you could build up your emergency fund, take the employer 401(k) match, do the Roth IRA, and then we get to this next step.

The fifth way of investing $500 a month is sometimes it's just better to invest that money in yourself. Initially, when you look at the ROI of investing $500 a month in the very beginning, it's not that much. Even if you get a 10% return in the first year, we're talking about a few hundred dollars here.

However, the ROI really just comes with investing within you. I know I'm pointing at myself when I say you, but I meant to say you! Yes, you! You have the ability to make a few hundred dollars in a day with the proper education and certification. Especially when you're young, making more money right now can set you up on a completely new trajectory in terms of building your wealth.

For example, five hundred dollars a month could be spent on getting your real estate license, getting all of the certifications, paying for everything that you need, and getting started on a new career. It could also be enough to put down on a trade certification to get specialized within a certain industry. It's also more than enough to buy pretty much every single investment book out there and to have money left over to get your real estate license and have money left over to go to some networking events and seminars.

Here's the thing though: even investing five hundred dollars a month into yourself is a lot of money. You don't need to invest all of that within yourself. That's even a lot for me! But I do really encourage you to take this concept to heart and realize the best investment you will get in the very beginning is usually in yourself. Just to be able to make more money early on, so you have more money to save and therefore more money to invest.

So now, number six—another option I want to mention here is for anyone who doesn't want to open a retirement account or just wants access to their money immediately without having to pay any early withdrawal penalties or anything like that. That is basically just by opening up a taxable brokerage to buy stocks and index funds. You could basically just invest your money normally without any retirement benefits later on, but by doing this, you'll have access to your money immediately at any time without having to worry about early withdrawal fees or penalties or anything like that.

Now, when it comes to this, because investing five hundred dollars a month isn't really a lot to be trading with, it's really important to use some sort of company that doesn't charge you a lot of money for trading fees. Now, when it comes to me, I have a few accounts that I use. I use Vanguard to buy their Vanguard index funds. I also use Robin Hood every now and then and, of course, I also use Webull, which is a little bit more advanced, but I really like the platform.

If you're interested in Webull, they're running a promotion right now. I think if you sign up and fund the account with a hundred dollars, they give you two free stocks, each of those free stocks are valued anywhere from eight dollars all the way to a hundred dollars. So, the way I see it, just for a hundred dollars in a few minutes of your time, it's worth it to sign up with them just to get the two free stocks and get immediate access to your money. Plus, I've been using them recently for commission-free trades, and I've just been overall very happy with them. So, if you're interested in that offer, the link below is in the description.

Now, finally, number seven, in terms of investing five hundred dollars a month, you can also use that towards starting your own business. This might be enough money to buy your own equipment to get started. It might be enough money to build a website and order inventory. It might be enough to start your own social media remote networking agency. It might even be enough just to buy some basic landscaping equipment and start mowing lawns. The possibilities, I think, when it comes to this, are pretty much limitless.

Very similar to investing in yourself, investing five hundred dollars a month into a business can have a very, very, very high ROI. Like six thousand dollars is more money than I have invested in my MacBook computer and my camera and my light and audio, all of this stuff, and the ROI that I get from making YouTube videos is just stupid.

Of course, just like with anything, if you stay disciplined with it, you're consistent with it, and you really educate yourself on something, starting your own business could just be the best move to make. So, like I said, these are the ways that I would recommend investing five hundred dollars a month because I really believe this is an amount that can add up to a very large nest egg later in life.

So ideally, go through this and prioritize them from paying off high-interest rate debt to maxing out the employer 401(k) match—then maxing out the Roth IRA—building up an emergency fund, and then, of course, investing back into yourself or starting a business.

And of course, all of this starts with just five hundred dollars a month! Smash that like button if you haven't done that already!

So with that said, you guys, thank you so much for watching. I really appreciate it. If you haven't already, subscribe! Make sure to subscribe! That does not cost five hundred dollars a month; that is entirely free. Also, add me on Instagram! I post pretty much daily, so if you want to be a part of that, feel free to add me there. Finally, subscribe to my second channel. It's called The Graham Stefan Show. I post there every single day that I'm not posting here.

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