Make Money Work For You Day And Night
We all know we need to have our money working for us and that we need to avoid consumer debt and high interest payments. However, sometimes this can be difficult or we fall into a trap from bad decisions made years ago. So to this end, we’re going to cover 7 proven methods and ways to make money work you and not the other way around.
Budget
Generally speaking, there are two ways in which we work for money and two ways we have money for us. Budgeting gives us an accurate current state of affairs and allows us to spot some weak points. On top of this, as we improve our financial situation, this will help us resist debt or make poor decisions.
Here are some effective budgeting tools to get you started with:
- Excel / Google Sheets
- Mint
- Personal Capital
Personally, I use Google sheets not because its the best, but because I’ve been running on a budget for so long that it pre-dates all of the other tools. Because, I’m so used to it and its been working for me, there is little incentive to change. The other tools are fantastic, tap into your bank account, and keep you honest and on track each month.
Reduce Debt
One of the most important ways to make money work for you is by eliminating or reducing the amount of debt you carry. Not only will this increase your monthly cash flow, and improve your monthly budget, but you will unhook yourself from the burden and obligation of paying interest. Put another way, you achieve a small portion of financial independence.
Stop Working For Other People’s Money
Open High Interest Savings Account
One of the first ways we make money work for us is to start accumulating it and lending it out. Our first step is to open a high interest savings account. After we open it, we start putting 5%-10% of our monthly income into this account. You decide how much, but we need to start the habit of socking money away each pay period. As a result, once we get our debts eliminated we are in a fantastic position to accelerate our investing habit. If you don’t already have one, head on over to bankrate.com and see the list of rates.
Create Emergency Fund
We all know we need an emergency fund, we have read it on various blogs, social media shares, and even financial planners promote the idea. If you will, please allow me to share with you my thoughts on this topic. I’ve been investing consistently since 2003 and I’ve seen many ups and downs with the markets; some of these have been outright scary. Through these ups and downs, my emergency fund has provided very little in real returns. In fact, its likely negative after taxes and inflation. However, the return it provides are three fold.
Emergency Money Let’s You Sleep Sound At Night
Firstly, it lets me sleep soundly at night knowing I have 10% of my portfolio available in cash at any given moment. When I started I wanted 3 months of take-home income available. Then when I started working as a self-employed IT consultant I increased it to 6 months. Now, I just hold 10% of my portfolio in cash, which is well above my 6 month take-home minimum. So my emergency fund has evolved over the years, but the basis has always been the same: plenty of cash on hand.
Emergency Money Makes Your Investment Money Work for You
Secondly, and one of the most important aspects of having a fully funded emergency fund, is that it is an enabler for your more volatile investments. At the risk of sounding a bit morbid, try thinking of it as a layer of fat that surrounds and protects your portfolio. If you come into an emergency this fund is tapped into first and your important stock holdings are left protected. In this way it enables your risky assets to grow untouched.
Emergency Money Provides a Stable Foundation
Thirdly and last of all, the emergency fund provides a rock solid stable financial foundation upon which your future financial empire will be built upon.
Save & Invest Your Money
Next up is the most obvious method to make money work for you: saving and investing. Of course, you should carefully choose solid long-term proven investments, and the best here will be diversified stock index funds. After all things are considered between risks, fees, returns and historical performance, our first pick should be index funds. Afterwards, depending on our unique goals and situations we can branch out and add some bonds, gold and perhaps some other income oriented investments.
According to numerous research studies, the U.S. stock market has posted an average annual return of 10.22% between 1926 and 2020, easily topping the performance of bonds and gold. If we had invested just $100 back in 1926, it would be worth $1,034,433.90 today. This is why we need to learn how to make money work for us and implement the investing method!
Now, going forwards we’re not guaranteed a 10.22% average growth rate. The table below shows how annual investments of $10,000 could grow at several different rates:
Invest in Stock Index Funds
- Index ETF portfolios that fit your risk profile
- Globally diversified across stocks and bonds
- Fully automated
- Tax sheltered retirement accounts
- Super low costs and fees
Make Your Credit Card Work For You
Most of us have a credit card and use it quite regularly. In fact, most households will have multiple cards at their disposal. If this is your case, then you likely already have a cash back credit card. In this way, you make your spending or outgoing money give you one last kick back. Look, its a fact of life that we have to spend some money each and every day whether its for food, gas, shelter or clothing. So why not make the most of it and get a cash reward?
Typically speaking, most cards will offer rewards in the 1-3% range for your typical daily spends on gas, grocery and then the “all other category”. It can be a little confusing at first, but after a few months you get the hang of it.
Lastly, one way to double down and make this money work for you is to invest the cash back reward into your tax deferred retirement account.
Passive Income Streams Makes Money Work Hard
Of the seven methods shared today, this is the one that makes you feel like your money is working really hard for you. Once established and fully functional, your passive income streams can be relied on month over month. On top of this, you get to decide if you save it, spend it, or reinvest it back into the assets generating the income stream.
If you’re looking for some ideas that work or some places to get started with passive income streams, then you need to read my 21 ideas for passive income streams article.
One of the hidden secrets with having a well established passive income stream is that it allows you to be more aggressive in your market investing. Because you are less reliant on day to day performance from your stock and equity based investments, you can be more aggressive in your stock allocation. In the end, this means you’re making your money work harder for you and over a longer period of time.
Decide Today That You Will Make Money Work For You
Making money work for you is not difficult, but it absolutely requires discipline and spending less than you earn. I hope this article has been fun to read and maybe even shed some light on some ideas or areas for improvement.
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2 comments
Another top notch post!
Thanks so much Ashley – really appreciate the feedback.
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