Making your bucks work for you is an essential step on the road to independence and financial security. Earning money by trading your time is vital, but finding a way to make money while not actively being involved is crucial.
While you might dream of making money while you sleep, there are numerous steps you can take to put your money to work.
Pay Down Your Debt
A vital thing you can do to make your money work for you is to pay down and eliminate your high-interest debt. This includes things like car loans, credit card payments and other types of consumer debt. You may be charged up to 20% or more in interest – which means that if you put money into paying off these debts, you’ll get a 20% return on your investment. It’s nearly impossible to beat that kind of guaranteed return.
Make a budget, calculate your income and expenses and start repaying your debt. The exact repayment strategy you use is less important. What is important is that you put a plan in place and start sooner rather than later. Once you have paid off your high-interest debt, you can start using the other suggested strategies in this article.
Get a High-Interest Savings Account
One place to start is to open a high-interest savings account separate from your checking account, where you keep the money for your regular monthly expenses. This is important for two reasons. The first reason is that keeping your savings separate from the money you use for your regular expenses keeps you from looting your savings to cover your bills.
The second rationale is that a savings account can offer slightly higher interest rates than a checking account.
Currently, interest rates are at a historic low. That’s good for refinancing or getting a mortgage but not good for savings accounts.
Still, a high-interest savings account is an excellent way to put money away for emergencies. For anything beyond that, look for investments that offer higher yields.
Grow Your Wealth Through Investing
If inflation hovers around 2-3% yearly, all the investments you make should bring in at least that much. Otherwise, you will have more money but it will be worth less than it was the previous year. If all your money is in a savings account that is earning 1% interest or less, you are actually losing money to inflation. There are several ways to generate residual income and you should choose the one that makes the most sense for you. Example: Investing in stocks has historically returned about 7% each year.
Take Advantage of Credit Card Rewards
Another option to make your money work for you is to leverage credit card rewards. A lot of credit cards offer rewards of up to 5% or more in certain spending categories. Several cards offer initial welcome bonuses that are worth $1000 or more. Taking the time to use credit cards strategically can be a worthwhile investment.
Start a Passive Income Stream
The best way to financial independence is generating passive income. It is income that continues to generate money with little to no involvement on a day-to-day basis. There are various ways to create passive income. A few passive income ideas might be writing a guide or book, investing in the stock market, creating and selling crafts or starting a blog.
Putting your money and time in real estate can also be a way to earn a (relatively) passive income. Rented properties are not without complications but you will earn rental income every month if everything works out. This will assist you in paying off your mortgage, hopefully leaving you with something each month. If you don’t think being a landlord is for you, there’s another way to invest in real estate: through a REIT. REITs combine some of the best features of real estate and investing in the stock market.
There is a major difference between making money and having money work for you. While it’s crucial to make money with a job, passive income is the real key to financial security. Pay off your debt, start investing and watch the returns roll in. You may not make money in your sleep but following these tips will set you on the right financial path.
Let us know in the comment section below how you make your money work for you.