You’ve heard it said all the time ‘you have to make your money work for you!’ While that is sound financial advice, the question becomes- what does that even mean? The vague idea is that you can place it in a savings or a retirement account that attracts high-interest rates. That could also be through investing in real estate or a business. We have a general idea, but how can it be practical for you?
In this article, we aim at answering this question, but that said, it is not as simple to answer. The reason is that there is no one set path that everyone can follow to make money work for them. There are as many ideas as there are people on this planet. However, we’ll look at methods that can get you started and inspired you to come up with something that suits you.
You can look at this article as the starter pack for what you need to make money work for you. It’ll help you see the state of your finances, and how to streamline them. It also shows you mechanisms to put into place to become financially healthy. Lastly, you get ideas on how you can make short and long-term investments to make your money work for you.
How to make money work for you in 2021
Clear your debt
If you have £1,000 in your checking account and your credit card payments amount to the same, the reality is that you have, in fact, £0 in your checking account. Look at the amount that you have in your account, and then subtract all the debt that you own. That, indeed, is how much you have. For a lot of us, the number would be in the negative.
Therefore, before you go about making your money work for you, clear all your debts, that’s the only way money can begin working for you. Start by knowing how much you owe instead of making minimum payments. When you have the figure in front of you, you’ll see what you’re working toward. Start with the small debts and make your way up. For example, look at the credit card that you owe the least and clear that, and make your way up. It motivates you to continue because the progress is evident. Overall, have a solid plan of how you’ll get out of debt and make your way up.
How you handle your money affects how you make money work for you. Part of having your money making money is the knowledge of what you want the money to do for you. Let’s unpack that. The first step is indeed to know what you want the money to do for you. Here is where money management apps come in handy. You can list your expenses, investments, loans, income, and the like and know where your money goes.
Incorporate in these apps is a budget that you’re to use to plan your money. Part of that money should go into investments; you can create additional fields to specify what investment. For example, if you do want to invest in real estate, after working through all your monthly expenses, you’ll know how much is left for you to invest in. The fantastic thing about a budget is you can see where your money goes. You can then cut out things you don’t need and channel the funds to what is more important.
The reality is that budgeting is a valuable tool when it comes to building your wealth. It also does give you more control over your finances, and you can make sound financial decisions after your income comes every month. Budgeting also helps you make quick financial decisions and avoid debt. You can equally monitor how you’re spending your money and make adjustments.
Save, save, save
It’s difficult to understand how saving can make money work for you. However, where are you going to get that considerable sum to get into real estate? What about the money you need to invest in a new venture? What of you getting back to school? Saving should be done with purpose; what do you want to do in the future? Purchase a house? Have the wedding of your dreams? Purchase that car you’ve always wanted?
The best way to have a savings account is to automate it. Every time money comes in, ensure that it goes automatically into your savings account. You can have your bank set a savings account for you where money gets deducted automatically for your checking account and gets sent there. It is harder to save when you have cash at hand because things suddenly seem essential. However, when you don’t have that option, suddenly those shoes won’t seem like something you need.
Pro tip: It helps to have a target so that your saving becomes more purposeful.
Open a savings account with 6+ months’ worth of living expenses
Before you go off to do things that will make money for you, you need a safety net. What does that look like? It is typically advised that you ought to have savings stored up that has six months’ worth of living expenses. If you lose your job, you would still have rent money and other costs, as you look for another job. Also, having a savings account gives you a cushion if your plans for making money work for you do not pan out.
Tip: Don’t start venturing into other ways before you get this sorted. It’s not only good practice, but it’ll help you sleep better at night.
Set up a retirement account
The best time to indeed start saving for retirement is now. You can have a pension, which also doubles up as investment accounts. How it works is that your savings get invested into the market, and you allow your wealth to grow. The other thing is that when you have a pension, you’re able to get free money from your employer. Your employer is meant to match the contribution that you’ve put into the pension from your pre-taxed salary. With that money, you can double the money that you’re putting in. When you have that in place, retirement will not be something you dread.
If you’re yet to set up these accounts, talk to a financial professional to help up set up the right account. Having a retirement account is a long term investment. You won’t feel the impact now, but when you turn 59½, you’ll be more than glad that you did start saving when you were young. Before then, none of the earrings will get taxed.
The other way to make your money work for you is having a passive income. That is money that you earn with little to no effort on your part. It means that while you’re sleeping, your money is indeed working for you. However, you ought to be cautious of the kinds of investments you go into. Indeed, the last thing you want is to fall into a pyramid scheme and have your money whipped out.
What you should opt for is making investments in business or real estate. Another way is to have an Ad-Sense account where you paid for advertising on your website. The other is to become an affiliate marker and get for any lead conversion. Look for programs that you can sign up for that only require initial time and effort, and when the system is in place, it becomes more hands-off.
Invest in the stock market
If you’re new to it, the stock market can be quite intimidating. If you do have the time, take a few weeks or months to analyze and understand the stock market. One aspect that you’ll learn is diversifying your portfolio- that is short for not putting all your eggs in one basket. With that kind of knowledge, you can spot safe investments and make long term or short term commitment.
For others, that is a complicated route. Here is where investment companies come in, and if you have a business, a brokerage firm. Investment companies are responsible for investing pooled resources into the market and share the profits among their members based on the initial investment. Look up the best companies for beginners in your area or country. Some things to look into are their fees, their reputation, and track record.
Invest in real estate
You can consider making real estate part of your investment portfolio if you have an appetite for risk. You could purchase a home to rent or sell when the market is performing better. Again, if you’re new to this, you can reach out to a vetted real estate holding company or Ltd. These institutions reduce an investor’s risk and liabilities. They are also responsible for handling taxes and bookkeeping. Real estate is generally a good investment option for making passive income. Do remember that when investing in real estate, you’ll have to put in a substantial amount.
Invest in a new business
Now, this way of making money work for you is not for the faint-hearted. You should try other avenues first. The reason for that is that when investing in a new business, there is the reality that it would fail and you would lose the initial investment that you’ve made. It is best to invest in a new business that you believe in with money you’re “willing” to lose. That said, if the business model is sound and there’s a demand for the product, then your investment will most certainly pay off.
You can opt to become a silent partner or have shares in the company. At the end of a given period, you can get paid dividends based on your shares and the profit earned during the same period. Here, you don’t have to worry about the day-to-day running of the company. You’ll be at home or work knowing that at the end of six months or a year, you’ll get a sum of money coming in.
Invest in yourself (education)
Another way to make money for you that people don’t consider is investing in yourself. Taking a degree, masters, doctorate, or a certification in your field of work are all away from increasing your earning potential in the job market. With education, you can command higher pay, and that comes with more possibilities for savings and investment.
The point of investing in you is making yourself more marketable to employees. You don’t need to spend thousands of dollars that you don’t have on a degree. An example would be taking a public speaking course if you’re a salesperson or in communication. The other could be taking an online accounting course that increases your efficiency in the workplace. That and more is what opens you up to promotions and landing jobs that you want.
You might feel overwhelmed by the information here, especially if you think that your finances are in disarray. That is quite normal; you can even call it a wake-up call. You, however, don’t have to remain in the state that you’re in. There are steps that you take to ensure that you are financially educated so that you’re able to make sound decisions around money.
Start with tackling everything we have covered monthly, checking off, and getting back to recurring areas. With time, you’ll come to appreciate the system that is in place. It will also change your perception of money. The money will no longer be something you don’t understand the value of. If anything, it will open your mind to the many ways that you can indeed create more wealth because you finally respect it and what it can do.