Investing Personal Finance

Here’s How You Can Make Your Money Work for You

How do you make money? It’s a question which is always on the mind of everyone. Whether you are a billionaire or a barista, you are always looking to find ways to make money. While working hard to make money is a good way to make money, a better way to make money is to make your money work for you. Don’t worry, it’s nothing illegal or unethical. You don’t even need to have a lot of money to start making your money work for you. With this post, we will try to answer all the questions you might have on this topic. 

Here’s how to make your money work for you:

Develop A Budget

It’s something we’ve all heard a million times before, but most of us don’t really plan and stick to a budget. If you’re guilty of being in the dark about your inflow and outflow of cash, putting together a budget is one of the best ways to start taking control of your finances.

In a nutshell, a budget shows you if you are spending more or less than you can afford. It also helps you direct your money to where it matters most, so you can stay on top of bills, pay down debt and start saving money to meet your future goals.

Typical expenses to consider include:

  • Fixed expenses
  • Vehicle running costs and transport
  • Education expenses
  • Discretionary expenses
  • Entertainment
  • Eating out
  • Shopping
  • Sports and recreation
  • Personal care items
  • Rent or mortgage repayments
  • Phone and internet
  • Childcare costs
  • Insurance
  • Vehicle registration
  • Debt repayments
  • Variable expenses
  • Utilities like electricity and gas
  • Food and groceries
  • Medical costs

There’s a wide range of free budget planning tools online, you can try to use them. If you are more old-school, just stick to a good old spreadsheet.

Get in touch with someone with a successful financial history

No matter what your financial situation looks like, the first thing you should do is identify people who have done well with their finances and spend some time asking questions. You can learn a lot by talking with someone in your network who has done well for themselves and is willing to break down what they did to get there. They can help you identify realistic financial goals and put strategies in place to achieve them. You can also speak to some of Wealthface’s ace financial advisors.

Before meeting this person, do your homework and think through what you want to get out of your meeting. Do you have something specific in mind? Such as developing a budget or choosing investments? Are your more focused on creating a comprehensive financial plan? Think carefully and formulate your questions in these areas:

  • Identifying short, medium and long-term goals
  • Developing an investment plan
  • Choosing tax-effective investments
  • Retirement planning and making the most out of your 401k
  • Working out your insurance needs
  • Developing strategies to achieve your financial goals
  • Budgeting and managing your money
  • Considering your estate planning needs

When you reach out to this person, let that person know that you admire how smart his/her financial decisions have been and ask him/her if you can ask them a few questions. Tell that person that you want to be responsible with your finances and would love to get his/her advice.

You might be surprised at how receptive these types of people are to an inquiry like this, and you will be even more surprised at how much you’ll learn from just 30-60 minutes of conversation with them.

Get A High-Yield Savings Account

In an ideal world, you’d have an emergency savings account totaling about six months of living expenses stored in cash. Even if that isn’t the case for you right now, it’s wise to start putting money away in a high-yield bank account that earns interest while you save.

Most transaction accounts offer an interest rate of around 0.01%, which essentially is the same as hiding your money under your pillow. High-yield savings accounts, on the other hand, typically offer interest rates above 1% i.e. 100 times higher than a regular checking account. Interest rates, fees and conditions vary depending on the bank and the product. Online-only banks tend to offer higher interest rates because they don’t have the expense of maintaining branches, but this isn’t always the case.

Invest In A 401k or IRA

One of the best ways you can make your money work for you more efficiently is to take advantage of tax advantaged accounts. 401ks and IRAs are types of investment accounts where your savings are invested in the market and have the potential to grow exponentially. Both are great options for tax-advantaged retirement saving, as you don’t pay any taxes on either the money invested or the growth of your investments.

Pay off your debts

Whether it’s credit cards, student debt or other loans, most of us will deal with some form of debt at one point or another. And while owing money might just seem like a way of life, the faster you can remove the burden of debt from your life, the faster you can take control of your finances.

Invest In The Stock Market

It’s a common misconception that you need to have access to a lot of capital to start investing in the stock market. You don’t need to know everything, or even a lot about the stock market (though that knowledge is definitely useful) to start investing. There are a number of passive investment options that allow you to “set it and forget it” and literally start making money in your sleep. Some of them are:

Robo-advisors

A robo-advisor service helps you invest without doing extensive research and picking all the individual investments yourself. Robo-advisor services work by using your investing goals to build an investment portfolio designed to achieve those aims.

Management fees for robo-advisors are typically around 0.25% to 0.50% of your assets.

Exchange traded funds (ETFs)

An ETF is a group of securities – such as stocks – that tracks an underlying index, like the S&P 500. ETFs can contain many types of investments, including stocks, bonds, commodities, or a combination of those. When you invest in an ETF, you own units or shares in the ETF, and the ETF owns the underlying investments.

Target-date funds

A target-date fund is a fund offered by an investment company that aims to grow assets over a particular period. The collection of assets within a target-date fund is automatically rebalanced and reinvested as time goes on, so it requires very little effort on your part. 

As the name suggests, investors typically use a target-date fund to reach a specific goal by a specific date, such as retirement or a child reaching college age. A target-date fund such as the Vanguard Target Retirement 2055 is aimed for millennial investors who plan to retire by the year 2055. Such funds usually start with a stocks heavy portfolio and gradually shift to bonds heavy portfolio near the end date.

Explore alternative passive income streams

Passive income is money that flows in on a regular basis without much effort on your part to create it. It also happens to be one of the best ways to make your money work for you. Activities like investing in the stock market can be considered a form of passive income depending on how much time you spend on those activities.

Here are a few passive income generation options:

Real estate

Despite its ups and downs, real estate is still a preferred choice for people who want to generate long-term returns on their investments. Unlike investing in a 401k or the stock market, investing in real estate typically requires more significant capital upfront to use as a down payment.

Real estate investment trusts (REITs)

REITs can be a good investment option if you’re not willing to take on the risk of buying property yourself or can’t afford it. A REIT is a company that owns and operates income-producing real estate.

Peer-to-peer lending

Peer-to-peer lending works by matching people who have money to invest with people who are looking for a loan. Peer-to-peer lending sites act as online marketplaces for peer-to-peer lending and make it easy for investors to connect with borrowers. Depending on the loan and rates, returns typically range from 5% to 12%.

Annuities

An annuity is a type of insurance product that you pay for upfront, which then provides you with a passive income stream for the rest of your life in the form of monthly payments. You can also opt to protect your spouse or other dependents with the help of the income, and the steady growth will also help you combat inflation.

Take advantage of rewards credit cards 

Conventional financial wisdom advises against credit cards. However, a rewards credit card whose rewards sync with your lifestyle, is a great way to make your money work for you. Think of frequent flyer miles, cashback, gift card etc. Most credit cards come with reward schemes these days, so choose the one that best serves your purpose. As long as you pay the credit off in time, you can reap all the rewards without worrying about the astronomical interest payments.

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