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Most people have heard the saying, “Let your money work for you.” The idea is that, when used properly, money can make more money.
The concept is nice. However, actually making it happen can be a challenge. The following are some ways that you can get your money working for you as opposed to you working for your money.
Create a Budget
When you have a budget, you are in control of your money as opposed to your money being in control of you. You need to compare all the money that you make against your expenses. Next, start cutting out unnecessary expenses with the goal of creating a reasonable savings plan.
Your expenses should be divided into three categories. The first category is fixed expenses, which include things like rent, car payment, or debt repayment. The second category is variable expenses, which include things like food, utilities, and gas. The third category is discretionary expenses, which include shopping, recreation, and personal care items. There are several online tools that you can use to help you track your spending.
Get a High Yield Savings Account
With good financial advice and a solid budget, you can start putting a plan into action. Ideally, save enough money to cover your expenses for around six months. If you are not there yet, start putting your money into a high-yield bank account so that you can earn interest as you save.
Traditional savings accounts will only give you 0.01 percent interest. You might as well stick your money under your mattress. High yield savings accounts offer interest rates of one percent or more. That is a lot higher than a regular savings account. There may be some restrictions on how frequently you can take out money, but the money you save is making you money.
Passive Income
Passive income is money that you get without a lot of effort. Your money is literally working for you. Real estate is the preferred choice for people who are looking to generate long-term returns. A DST 1031 is an example of a real estate investment that allows an investor to diversify their investment and create wealth passively. Other examples of passive income include peer-to-peer lending and annuities.
Invest in a 401(k) or IRA
Once you pay down debt and create your emergency fund, make your money work for you by using tax-advantaged accounts. An IRA or 401(k) are investments where your saved money is invested in the market. As tax-advantaged retirement savings, you don’t have to pay taxes on the money that you invest or the money that you make from your investment.
Take Advantage of the Stock Market
Contrary to popular belief, you don’t need a lot of money to make money in the stock market. You can start with as little as $500 and add money to your investment as you save more. You don’t need to be a stock market genius to make money. There are several passive investment options that follow the “set it and forget it” model.
Find Financially Successful Role Models
Most public schools do not teach students about money. This means that you likely did not grow up knowing the genuine power that money has.
Regardless of your financial situation, you need to find someone who has done well with money and then ask them some key questions. A financial planner may offer some expert advice. But they have no incentive to give you quality financial advice. They are incentivized to offer investment opportunities that make them money.
However, talking with someone who has done well with money and who is a friend of yours can help you identify realistic financial goals and then employ strategies to achieve those goals. When you meet with a friend or mentor to talk about the power of money and how to make money work for you, you need to do your homework in advance. Know what you want to get out of the meeting.
Do you want them to help you develop a comprehensive financial plan or teach you about developing a budget? It is surprising how receptive financially successful individuals are to inquiries like this. But it is even more surprising how much you can learn about money by talking to people like this for just one hour.
You will never become financially stable working for money. The only way to achieve the stability you want is to learn how to make your money work for you.