Investing can feel intimidating, especially when you’re trying to balance financial responsibilities like bills, savings, and unexpected expenses. But what if you could grow your wealth steadily without the stress of constantly deciding how much to invest or when?

Enter the automatic investment plan (AIP): a simple, powerful solution that builds financial discipline while working within your unique budget.

With an AIP, you can take small, manageable steps toward your long-term financial goals. Here’s everything you need to know about setting up an automatic investment plan that fits your budget, so you can confidently take charge of your financial future.

What Is an Automatic Investment Plan?

An automatic investment plan (AIP) is a system that allows you to invest a set amount of money at regular intervals, such as weekly, biweekly, or monthly. The funds are automatically withdrawn from your bank account or paycheck and used to purchase investments like stocks, ETFs, or mutual funds.

The process is designed to be hands-off, turning investing into a seamless part of your financial routine. By doing this consistently, you can build your portfolio over time without worrying about timing the market or making impulsive decisions.

Imagine you decide to invest $100 every month into an ETF that tracks the S&P 500. With an AIP, that amount automatically transfers to your investment account and purchases shares—even if you’re busy with work or life. Over time, this consistent approach, combined with the power of compounding, can lead to substantial growth.

Why Choose an Automatic Investment Plan?

Automatic investment plans offer several key benefits, making them an excellent option for anyone striving for financial growth without added stress.

1. Consistency Builds Growth

An AIP encourages you to invest regularly, no matter what the market is doing. This consistency takes advantage of a concept called dollar-cost averaging, where you buy more shares when prices are low and fewer when prices are high. Over time, this can help reduce the impact of market volatility and lower your overall cost per share.

2. Financial Discipline Without Effort

For many people, the hardest part of investing is sticking to it. An AIP removes the need for willpower by turning investing into a “set it and forget it” routine. When your contributions happen automatically, you’re less likely to skip a month or get sidetracked by other financial goals.

3. Start Small, Grow Big

You don’t need a large sum of money to get started with an AIP. Many platforms allow you to invest as little as $10 or $50 per month, making it accessible to everyone. Over time, even small contributions can grow into a significant portfolio.

4. Reduces Stress and Decision Fatigue

Investing can feel overwhelming when you’re constantly deciding how much to invest or which stocks to buy. An AIP simplifies the process, reducing the mental load and giving you more time to focus on other aspects of your life.

How to Set Up an Automatic Investment Plan

Now that you understand the benefits of an AIP, let’s walk through the steps to set up your own plan without overstretching your budget.

1. Start With Your Budget

Before setting up an AIP, take a close look at your monthly income and expenses. Identify how much money you can comfortably allocate toward investing after covering the essentials, such as rent, utilities, groceries, and debt payments.

  • Track Your Spending: Use budgeting apps or tools to track where your money is going each month.
  • Look for Opportunities to Save: Small adjustments, like cutting back on dining out or entertainment, can free up extra funds for investing.
  • Set a Safe Amount: Start with an amount you won’t miss, such as $25 or $50 per month. You can always increase it later as your income grows or expenses decrease.

2. Choose the Right Platform

Many investment platforms and brokerages make it easy to set up an AIP. When selecting a platform, consider these factors:

  • Low or No Fees: Look for platforms with minimal fees to maximize your returns. Popular options include Vanguard, Fidelity, and Robinhood.
  • Fractional Shares: Platforms that offer fractional shares, such as Public or Stash, allow you to buy portions of high-value stocks with small contributions.
  • Ease of Use: Choose a platform with an intuitive interface that fits your level of experience. If you’re a beginner, opt for platforms that offer education and guidance.

3. Select Your Investments

The next step is choosing what to invest in. If you’re unsure, consider these beginner-friendly options:

  • Index Funds or ETFs: These track the performance of a market index, like the S&P 500, and provide instant diversification.
  • Target Date Funds: These funds automatically adjust their asset allocation as you near retirement.
  • Stocks or Mutual Funds: If you have specific companies or sectors you’re passionate about, you can choose individual stocks or actively managed funds.

When starting out, aim for diversification to reduce risk. Index funds and ETFs are often the easiest way to achieve this.

4. Set Up Your Plan

Log in to your chosen platform and locate the automatic investing feature. Follow these steps to configure your plan:

  • Link Your Bank Account: This allows the platform to withdraw funds at scheduled intervals.
  • Choose a Frequency: Decide whether you want to invest weekly, biweekly, or monthly.
  • Set Your Amount: Enter the dollar amount you’re comfortable investing.
  • Select Investments: Specify which stocks, funds, or ETFs you want your money allocated to.

Once your plan is set, the platform will handle everything automatically.

Balancing Investing With Other Financial Priorities

The key to a successful AIP is striking the right balance between investing and meeting your other financial needs. Here are some tips to avoid overstretching your budget.

1. Build an Emergency Fund First

Before committing to an AIP, ensure you have an emergency fund equal to 3-6 months’ worth of living expenses. This provides a financial cushion if unexpected expenses arise, like medical bills or car repairs.

2. Pay Off High-Interest Debt

High-interest debt, such as credit card balances, can offset investment gains. Focus on paying down debt first, while contributing smaller amounts to your AIP.

3. Adjust Your Plan as Needed

Life changes can impact your financial situation. If you take on new expenses, like a mortgage or childcare, reduce your AIP contributions temporarily. Remember, flexibility is key.

The Power of Starting Small

If you’re hesitant to start an AIP because you think you don’t have enough money, remember that small contributions add up over time. Even $25 per month can grow significantly thanks to compounding returns.

Investing $50 per month with an average annual return of 8% can grow to over $37,000 in 20 years. That’s the power of consistency and time on your side!

By starting small, you can gain confidence in the process without worrying about overstretching your budget. As your financial situation improves, you can increase your contributions to accelerate growth.