One of the most basic pieces of financial advice that has been used so much, it’s become almost cliche is “don’t work for money, make your money work for you”. However, if this wasn’t a valuable piece of advice, it wouldn’t be so common. Knowing how to truly make your money generate even more money with minimum effort on your part is one of the biggest differences between the rich and the not-so-rich. But what exactly does making your money work for you mean, and how can you start doing it? There are some wise financial decisions you can make now that will be of immense benefit to you in the future.
- Budget: When you assign every single earning you make to a category of either spending, savings or investments, you are exerting more control over your money. This is the most important way to handle your finances and is the best tool – second only to your income – you have to really build wealth. When you master proper budgeting, reaching your set goals and avoiding debt will be made that much easier. Budgets help you monitor your income and expenditure and help you make sure you spend less than you earn everytime. Be sure to follow through on your budget, though – having a budget is no use if you stop abiding by it after a week.
- Open high-yield savings accounts: While you’re eager to start making your money work for you, it’s always advisable to have proper savings to fall back on – a financial safety net, if you will. Have emergency savings to cover about 6 months of living expenses. Instead of putting your money in regular savings accounts with their ridiculous 0.01% interest rates, take advantage of high-yield checking and savings that offer interest rates exceeding 1% — 100 times that of regular savings accounts. Online banks usually operate such accounts and you can get comprehensive lists of high-yield checking and high-yield savings on NerdWallet.
- Invest: The next step to make your money work for you is to have an investment account. Participating in the stock markets doesn’t mean putting in money and pulling it out to take advantage of fluctuations in the market. This is strongly advised against by experts. With time, dips in the market would even out and the result would be an overall gain, but this can only be benefited from if you leave the investments alone. Another mistake people make is to have a lot of cash sitting in savings. While there is comfort in knowing you have over a year’s worth of spending cash saved, inflation is something they do not factor into their plans. Inflation will eat away at any money that is not generating more and you will end up losing at the end of the day. When investing, try to diversify your portfolio and spread your investments across several kinds of stock in different industries. Real estate is a good investment option that will make your money work for you by generating income on a monthly basis. Having a specific set of goals that you save and invest for is advised. Not only does it motivate you, goals like a school fund for your kids and the desire to retire early can help drive the types of investments you make.
- Invest in yourself with a professional degree/certification: Increasing your worth in the job market is another good way you can make your money work for you. If you can further your education, you can make yourself earn more eventually. Simple classes like a Microsoft Excel course or a public speaking workshop can go a long way to increase your value in the job market. Even if you don’t have the money to spend on a course, you can find several free courses in many different fields online.
- Get passive income: When you start making returns from your savings and investments, these returns could eventually come to replace the income you make from your day job. The money you have in an investment account can be used to build passive income. Long term investments made consistently through the thick or thin will result in the amount of money you have invested continuing to grow. As you accumulate wealth, you build passive income to a point where work is optional. The key is to understand how equity markets work and to develop a long term game plan so you don’t panic and sell at the next inevitable stock market crash.