There are many reasons (or excuses) that people use to put off buying stocks, from lack of extra cash to needing more time to do research. But time, as they say, kills all business. If I had never invested before and wanted to start buying stocks for the first time on a limited budget, here is the approach I would take. In fact, that’s the approach I’m currently taking as an investor!

Why can you start small and wait for size

Before I get into the details of how I invest, let me explain two reasons why I think it might make sense to start buying stocks on a limited budget.

The first is that even if people start investing in the hope of making money, the path is not always smooth. Rookie mistakes can be painful but valuable lessons in investing. Making such mistakes with less money at stake can make them less painful — but just as valuable.

Another reason is that life often raises the need for money. Waiting until you have saved up many thousands of pounds before investing can in some cases mean waiting a very long time – and potentially missing out on great stock market opportunities in the meantime.

A practical way to invest

So, how would I start buying stocks in practice?

My first move would be to examine the wide range of stock trading accounts and Stocks and shares ISA available, to choose one that suits my own individual needs.

I would start making regular contributions. A weekly £25 adds up to £1,300 a year. My approach is to invest what suits me, although I aim to have some consistency as I believe it is habit forming.

With the option to buy shares, I would grab ideas like how to value them.

Then I would look at companies that I understood and that I felt had strong long-term commercial prospects to determine if I wanted to buy them. Even with a lot of research, what appears to be a promising business can turn out to be a disappointment. So I would start buying stocks as I intended to continue (and in practice do): by diversifying over a range.

Here is an example

To illustrate, one stock that I think investors with an eye on passive income potential should consider buying: M&G (LSE: MNG).

I like companies that operate in markets with a large number of potential customers and high revenue potential. That is certainly true of the asset management space in which M&G operates – and I expect it to be true in the long term as well.

M&G can compete thanks to certain strengths. It has a well-known and respected brand that helps it attract and retain customers. It has an established base of customers, with over 5 million retail customers and 800 institutional customers. It also has deep experience in financial markets.

Still, one risk I see (and all stocks have risks) is clients pulling more money out than they put into M&G funds, which has been happening lately across the bulk of the company’s business (excluding its Heritage division).

Overall, however, I like the company’s potential relative to the share price. Its chunky dividend yield of 9.8% appeals to me too.