How to invest if I have limited capital and income? 

How should I start? 

What should I invest into? 

Is it into Bitcoin, StashAway, Funding Societies, unit trusts, stocks, Forex … etc? 

Over here, I would like to invite you to hold onto your horses for a moment. 

Personally, I totally understand that the above are real questions and I too have stepped in your shoes before. I recalled, at that moment, I was clueless and had very little knowledge about the subject of finance and investing. I had very little income and had nothing much to show for in my bank account. 

Thus, to answer the question above, I would like to share with you a tale of two buddies: Jack and John. 

Jack and John are friends since university. They found themselves their first job, paying them each a fixed salary of RM 3,000 a month. That was really awesome until they realised that they spent around 80% of their salary on food, rent, gas, phone bill, car loan instalment, and some occasional entertainment. Hence, the two buddies are considering how they should invest their RM 600 per month in order to grow their wealth faster. 

They both realised that they have to take more action to improve their financial lives as they know that financial security is more than job security. 

Thus, the two buddies had taken the following paths: 

Let’s Start with Jack: 

Jack is diligent in finding ways to double his capital as fast as he possibly can. As he continues to save RM 600 a month, he spends most of his nights on multiple websites, forums, blogs, YouTube videos … etc to learn how he could start to do stock trading. Jack learns about chart patterns, technical indicators, and market timing. Subsequently, with a couple of thousands he saved, Jack started trading stocks in the stock market. 

Two years later, Jack has mastered the art of stock trading and is able to make a trading income of RM 500 a month from his portfolio of RM 25,000. Jack is very proud of what he is able to achieve as he knows most traders fail to achieve the highly impressive results that he is currently achieving. 

What about John? 

John, on the other hand, had decided to enrol himself into a Toastmasters Club. 

He believes public speaking is a skill that will boost his effectiveness at work for his job requires him to meet clients and do sales presentations. The fees to sign up for a Toastmasters Club is affordable to John as it is below RM 1,000 a year. 

After signing up, John spends his nights on attending club meetings, learning all he possibly could on the subject of public speaking. This includes crafting a nice speech, vocal variations, body languages, grooming, networking and the design of impressive presentation slides. After his meetings, John usually stays on for a late cup of coffee as he enjoys picking brains from other seasoned speakers and also, he occasionally gets to meet up with friends who are either working or are in businesses related to his industry. 

So, questions: 

‘Who do you think will be better off financially after two years?’ 

‘Is it Jack or is it John?’ 

Can’t they do Both Simultaneously? 

The answer is … 

It would be highly impractical for one who has a day job to do so. Why? 

Trading is a skill. It takes time to learn and master. If you think anyone can trade stocks and be consistently profitable without putting time to learn, practise and master, you will not need to read this article for you would now be busy trading stocks to make more money. Probably, you should be a multimillionaire by now. 

Public speaking is also a skill. It takes time to learn, polish, and master. Just look at a well-presented speech that is highly impactful. The presenter seems like he is smooth, natural, and born to speak. Heck, … We all may not know how much effort and time he spent to learn the skill, practise it, hone it and master it until we witness the delivery of his speech. 

So rather, the real questions are:  

‘What is the skill to learn first to elevate your financial life significantly?’ 

‘Is it to trade stocks, Forex, Bitcoin … etc?’ or, 

‘Is it to acquire a high income skill that you could use to make money for life?’ 

‘So, how do we decide?’

Well, over here, I believe the answer is more evident if we look at the questions above from the perspective of a banker. 

The Tale of Two High Income Earners

Let’s go back to Jack and John. 

A couple more years had gone by. 

Both Jack and John are earning RM 10,000 a month. 

But, their sources of income are different. 

Jack earns RM 5,000 a month from his day job and he makes another RM 5,000 a month in side income from stock trading activities. Meanwhile, John makes as much as RM 10,000 a month solely from his day job. 

Now, Jack and John want to invest in a property. They both meet up with Mr. Li, the branch manager of a local bank to ask for a mortgage. So, the next question is: ‘How would Mr. Li assesses Jack and John’s income levels when he processes their loan applications?’ 

‘Would Mr. Li sees Jack and John as individuals who earn RM 10,000 a month?’ 

‘Would Jack and John qualify for the same amount of mortgages?’ 

Obviously, the answer is nope. 

Mr. Li will still view Jack as a RM 5,000 a month income earner. He will not view Jack’s RM 5,000 a month in trading income as a reliable source of ‘income’. 

So, How Big is This Difference? 

Well, let’s say, both Jack and John have zero outstanding debts apart from their car loan installment of RM 1,000 a month and they have been prompt in paying their monthly car installments without fail. 

Based on a maximum debt-service ratio (DSR) of 60% and the rule of 200, Jack’s maximum amount of mortgages that he is eligible for is RM 400,000. 

Jack’s Maximum Mortgage

= ((Monthly Leverageable Income x 60%)- Car Loan Installment)) x 200

= ((RM 5,000 x 60%) – RM 1,000) x 200

= (RM 3,000 – RM 1,000) x 200

= RM 400,000

As for John, the maximum amount of mortgage he can qualify is RM 1 million. 

John’s Maximum Mortgage

= ((Monthly Leverageable Income x 60%)- Car Loan Installment)) x 200

= ((RM 10,000 x 60%) – RM 1,000) x 200

= (RM 6,000 – RM 1,000) x 200

= RM 1,000,000. 

Their difference is RM 600,000 in loan eligibility amount, which is a form of free money (or almost free) to real estate investors. 

Thus, while Jack is able to buy a RM 300,000 property, John is able to buy three RM 300,000 properties. 

Now, who do you think can build his net worth faster? Is it Jack or is it John? 

Get Your Perspectives Right

So, are you asking me to not invest or do stock trading? 

Nope. That is not my point. 

My point is this. If you have limited capital or income today and you like to have a boost in your financial life, what are the best possible ways that you can do so efficiently and sustainably for the long-term? 

Is it to focus on fast money without solid foundation?

Or, is it better for you to build high income skills that are leverageable by mortgages, the cheapest form of loans presently. 

You can start learning about investing through reading materials or courses that are legit as you diligently build and sharpen your high income skills. 

With that, I’ll end my note with a list of pointers:

1. The best investment for one who has limited capital / income is in ourselves. 

2. If you think you can make fast money from stock trading, I’m sorry. You might be believing in a fantasy. It’s time to pop that bubble. 

3. It could take years of learning to master the art of stock trading. Not many, in fact, could achieve a level where they can make trading profits consistently. 

4. Even if you attain that level, it is likely that you will not build wealth as fast as another person who focuses on building his active income. 

5. Why? This is because trading income is not leverageable but active income is and thus, is more valuable. 

Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with Co-Founded, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

    3 replies to "How to Invest If I Have Limited Capital and Income?"

    • Rikku

      I guess trading income is just not leverageable to dividend investors 😉 Compared to other asset classes, property investments have been subpar since 2015, therefore making them a horrible example.

    • Ariff Shah

      There is one more idea. Build your own business, register your company, gain your income monthly.. with a consistent income/profit let say 1 year, you may apply for bank loan.

      Well this will include hard work & discipline ( well this is one of key to succees).

      Anyway, good post bro as usual.


      • Ian

        Hi Ariff,

        Yup, building a business is a good way although it is not easy. If it is up and running, things will get easier over time as the owner picks up new skills, new clients, new assets and have more resources to expand.

        Thanks bro 🙂

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