You can achieve your objectives with the aid of money. It can give your family security and comfort, facilitate planning for the future, and enable you to save money for significant life milestones. You must learn how to make your money work for you in order to accomplish these goals, though.
The most effective method for making your money work for you will be discussed in this article. To do this, we’ll look at 16 practical steps you can take right away to do:
Table of Contents
Create Specific Financial Goals
Knowing where your money is going is essential if you want to make it work for you. According to Jake Hill, CEO of DebtHammer, you should “create specific financial goals.”
“Whatever it may be, work toward it. Perhaps you want to earn a certain amount through a side business or you want to invest a certain amount in real estate. Make sure that your financial objectives will be of sufficient benefit to you in the future. Preferably, select objectives that will be of continuous benefit to you, such as creating passive income.”
Create a Budget and Stick to It
Start by creating a budget if you want to make your money work for you. A good budget helps you clearly understand where your money is coming from and where it is going.
Budgeting is important because the first step to making your money work for you is having control over your money.
“The simplest definition of a budget is ‘telling your money where to go,'” said Author of Organized Simplicity: The Clutter-Free Approach to Intentional Living, Tsh Oxenreider
Before you can begin to save and invest, your monthly income must exceed your monthly expenses. As a result, you must be fully aware of your expenses in relation to your income, determine whether they are excessive in light of your financial objectives, and determine where and how to make necessary cuts in order to boost your ability to save and invest.
The 50:30:20 budgeting method is a good place to start. In this country, basic needs (housing, food, clothing, and utilities) take up 50% of your monthly income, while wants (vacations, eating out, etc.) account for 30%.), and 20% for savings and investments.
Some people who desire to retire early often use an approach where their savings and investments represent between 40% and 70% of total monthly income (but this is considered “extreme savings”).
Stick to the 50:30:20 strategy if your financial objectives don’t call for such drastic measures.
But keep in mind that in order for your money to work for you, you must earn more than you spend. Therefore, ensure you are saving enough money to meet your financial goals. “Budgeting your money is the key to having enough,” said The 50/30/20 rule was made popular by Elizabeth Warren, a US senator.
Make sure you develop the discipline to stick with it after you’ve made a budget and decided how much of your income you’ll be saving. You may be able to benefit from some hacks.
First, track your spending and keep comparing the amount spent with the amount budgeted. You’ll be able to tell when you’ve spent all of your budgeted money for an expense in this way. In order to stop overspending, this is essential.
Second, automate your savings/investing. Soon, we’ll get into more detail about investing. You can, however, stay within your spending limit by automating your investing in advance of that conversation. As George Clason, the author of The Richest Man in Babylon said, “pay yourself first.”
Your investments are the money you spend on yourself, so you must start with those before you can begin to pay for other things and people. Automating your investing is a practical way to accomplish this.
Create An Emergency Fund
When you don’t have financial control, surprises can be frightening. Any progress you’ve made toward taking control of your finances can be undone by an unforeseen car repair, medical procedure, job loss, or other financial emergency. This can cause you to quickly fall into new or more debt.
Creating an emergency fund is another way to make your money work for you because it means you have planned for surprises. Should an emergency arise, you can use the funds in your fund to work toward solving the problem and regaining control of the circumstance.
It may take some time to accumulate an emergency fund. You should aim to save three to six months’ worth of expenses. However, it will be helpful if you can save even a small amount. If you are still paying off debt or don’t have much wiggle room in your budget, set aside whatever you can in a “surprise expenses” category in your budget. Transfer all funds in this category to a different savings account at the end of the month.
Plan for Each Dollar
Have a strategy in place for every dollar that comes in to make your money work for you.
“Money without a purpose ends up being spent, so give some thought to what your goals are and how you should divide your income between them,” said Bormann Wealth Management LLC’s Nick Bormann is a financial advisor.
He added that mindfulness about your money is key to financial success, which means “making conscious choices about where to spend, what types of accounts to use and what your highest priorities are.”
Get Out of Debt
You pay more than the original purchase price when you have debt. Additionally, you must pay interest, which can significantly reduce your income.
When you have debt, your money is working against you to pay interest instead of for you. Your options are constrained and you are put under financial strain.
In contrast, clearing your debt gives you the freedom to put that money to use on the things that matter to you. You can use it to achieve other financial objectives, such as putting money aside for education, starting a retirement account, going on vacation, or upgrading your living arrangements. You could launch a company. You can start investing it, which will enable you to increase your wealth and establish more financial independence and stability.
If you have a lot of debt and are feeling overwhelmed, you can use the snowball method to control the debt repayment process.
- On all but the smallest debt, make only the minimum payment.
- Do your best to pay off the smallest debt with any extra cash you have.
- After it has been repaid, move on to the next smallest.
You’ll have more money available as you pay off your smaller debts so you can pay off your larger debts. You can concentrate your efforts and pay off your debt faster thanks to this momentum.
Open a High-Yield Savings (and Checking) Account
You are losing out on interest if you keep your money in conventional savings accounts. Enter the high-yield savings account, which operates similarly to a regular savings account but provides a higher annual percentage yield. Even though you must pay taxes on that interest, it will probably still give you a better return than a regular account. Additionally, you are less likely to spend that money because there is a cap on the number of withdrawals you can make.
Invest in Your Financial Education
You have probably heard the popular saying that “knowledge is power.”
Success begins with knowledge, even though knowledge by itself (without action) is ineffective.
Investing in education gives you an unfair advantage over others.
You must therefore make an investment in your financial education if you want to accomplish your clearly defined wealth-building goals.
One of the most popular advocates of financial education is Robert Kiyosaki, an accomplished entrepreneur and author, Rich Dad, Poor Dad. Comparing the power of money with that of financial education, he said:
“One type of power is money. Financial education, however, has greater power. Money comes and goes, but if you are knowledgeable about how it functions, you can gain control over it and start accumulating wealth. The majority of people attended school but never learned how money works, so they spend their entire lives working for money, which is why positive thinking alone does not work.”
“If you understand how money can work for and against you, you can make better decisions,” said Ariel Investments’ president, Mellody Hobson. “Understanding money, regardless of its value, is the key to financial literacy rather than wealth. How you handle it and take advantage of opportunities will determine how well you do.”
You must develop the habit of regularly learning how money works if you want your money to work for you.
Invest in Real Estate
Real estate investing is a fantastic way to put your money to work for you if you have the funds to put down payments on real estate, according to Omer Reiner, president of the real estate investment firm FL Cash Home Buyers, LLC.
“When you own a property,” Reiner said, “you control how you want to make money from it. It can be rented out, improved for sale, added value to raise rents, etc.”
Invest in the Stock Market
To really grow your money, your best bet is to invest in the stock market, by purchasing individual ETF’s (exchange traded funds) and mutual funds in a “model portfolio,” according to Founder and CEO of Nabla Financial, Johnny Medina.
“Saving at least 10% of your gross income is the basic idea. Compounding will take care of the rest if you invest your savings with a long-term perspective.”
For instance, if you start with $10,000, save $1,000 every month and invest it in a portfolio that will yield 10%. You would have $2.3 million after 30 years.
Read about Why is It So Hard to Find a Job?
Invest in S&P Funds
The S&P fund is another type of fund that has a history of producing solid, reliable results and which historically generates an average annual return of 11%.
According to Andrew Lokenauth, CEO of Fluent in Finance, “The S&P 500 is made up of 500 of America’s largest businesses, representing all 11 industries. For the vast majority of investors, investing in the S&P 500 is simple and stress-free because you aren’t placing your bets on just one company but rather 500 of America’s biggest corporations.”
Invest in Indexed Mutual Funds
The CEO of Credit Summit, Carter Seuthe, suggested that index mutual funds are a fantastic way to increase wealth. He explained that these funds operate by making an equal investment in each stock on a specific exchange, such as the NASDAQ or the Dow Jones.
“They have consistently been shown to outperform most actively managed investment accounts,” he said, “and come with the added benefit of avoiding the fees that come with intensive management.”
He continued that index mutual funds offer a solid return without carrying a significant level of risk.
Build a Diversified Portfolio
Long-term investments in passively managed funds (ETFs) are recommended if you want your money to work for you. However, in addition to keeping a long-term focus, it’s also important to ensure the portfolio is well diversified.
The importance of diversification
When you place all your eggs in one basket, if that basket is lost, all of your eggs are also lost. The loss of one basket is less tragic, though, if your eggs are spread among several baskets.
The same holds true for investing.
If all of your assets are in one, it will be tragic if that asset is lost. The loss of one asset won’t be as tragic, though, if your money is spread across several different assets.
To minimise your risk, ensure you are investing in a diversified portfolio that includes various assets that don’t move in the same direction (assets that are not positively correlated). You can invest in different asset classes (stocks, bonds, REITs, bitcoin), markets (US, developed, emerging), market cap (large, mid, low), industries (finance, health, consumer discretionary, etc).
“You must be diversified enough to survive bad times or bad luck so that skill and good process can have the chance to pay off over the long term,” said Speaking on how diversification lowers risk, Joel Greenblatt, co-founder of Gotham Funds. In fact, without diversifying, you are “literally throwing out money,” according to Co-founder and trader at the technology and company Susquehanna International Group, Jeff Yass.
In addition to minimising risk, diversification can also maximise your returns. Based on our analysis of three different types of portfolios’ levels of diversification, we discovered that the most diversified ones also produced the highest returns.
The first is the S&P 500 which contains the 500 largest US stocks; the second is the Mod Risk portfolio which includes US stocks (40%), global stocks (30%), and high-quality global bonds (30%); the third is a Thurn Mod Risk portfolio, “a portfolio globally diversified across multiple asset classes including stocks, bonds, real estate, and commodities.”
Take Advantage of Credit Card Rewards
Another way to make your money work for you is to take advantage of credit card rewards. Many credit cards offer bonuses of up to 5% back or more on specific types of purchases. Additionally, a number of cards provide initial welcome bonuses of at least $1,000. It can be beneficial to spend some time using credit cards wisely. Check out our list of the best rewards credit cards to see if one of them might make sense for you.
Start a Passive Income Stream
Earning passive income with your money is another way to make it work for you. The best way to understand the distinction between making money and making money is to earn passive income.
“The key to financial freedom and great wealth is a person’s ability or skill to convert earned income into passive income and/or portfolio income,” said Robert Kiyosaki.
Basically, passive income is money you make from work you’ve already done (and which occasionally only requires a little time and attention). As should be clear, the primary and best way to generate passive income is through investing in a passive fund.
However, there are other ways outside of traditional investing to earn passive income: selling digital products (e.g., books, courses, apps), affiliate marketing, dropshipping, content creation (monetising articles or video content).
These passive income sources sure require some initial outlay of work (and some maintenance work here and there), which makes them different from get-rich quick schemes. However, once they are set up, you can continue to make money from them while you are asleep, which is what gives them their passivity. Over many years, the money you invested in setting them up keeps paying off.
Use An Online Financial Planner
Any investor who has ever made an investment will readily acknowledge that one of the biggest barriers to wealth creation is our emotions.
On the one hand, we don’t want to lose money; on the other, we want it to increase as quickly as possible. No wonder Warren Buffett has often said that temperament, not intellect, is the most important quality for an investor.
Because of this, when our emotions override our reason, we frequently make bad choices. This is why controlling your emotions is a necessary step in learning how to make money work for you.
One way you can avoid putting emotions above your intellect is to use a digital financial advisor. While a digital financial advisor is concerned about your money, they are not susceptible to the emotional ups and downs that frequently cause investors to lose money.
You can develop thorough action plans with the aid of a digital financial advisor to assist you in reaching your financial objectives. Instead of focusing on what is happening daily in the market, they help you develop a long-term perspective.
Among other things, they can assist you in estate planning, retirement planning, developing an investment strategy, and achieving tax efficiency.
Digital financial advisors also offer personalized solutions that will benefit your particular situation and are more affordable and accessible than traditional ones.
The Bottom Line
Making money work for you as opposed to working for you has some significant differences. While having a job and making money is important, creating passive income is the true secret to financial security. Reduce your debt, begin investing, and watch the money roll in. Even though you can’t make money while you sleep, using these suggestions will help you get started in the right direction.
Frequently Asked Questions
What Does It Mean to Make Your Money Work for You?
Making your money work for you entails taking charge of your money and using that power to steadily increase your stability and security.
You may eventually be able to gain financial independence or build wealth through investing. But none of those things can occur unless you first know where your money is going and discover more effective ways to use it.
How Do You Make More Money from Home?
There are plenty of ways to make money online, especially as more industries shift roles to work-from-home positions. Customer service agents, virtual assistants, and copywriters have all been able to work from home full-time. Additionally, you can try selling goods on eBay or through a dropshipping company. Some people even have success with their podcasts and YouTube videos.
How Much More Money Do College Graduates Make Than High School Graduates?
The median career earnings for someone with a bachelor’s degree are more than twice as high as for someone who only has a high school diploma or GED, according to a 2020 study from the Brookings Institution.
How Do You Make More Money as a Teenager?
Teenagers frequently work at fast food establishments, theaters, and retail establishments. Teenagers can also make money doing odd jobs for neighbors, starting a babysitting service, or perhaps as an intern at a local business.
