Often, we let money control our lives instead of using it as a tool to advance our goals and live a more comfortable life. But what you want to do is make money work for you now and into the foreseeable future.
However, the challenge is we often don’t realize the financial mistakes we are making and instead, let money be in the driver’s seat and steer the wheel for us. Lame analogies aside, that can be completely true!For years I had no clear vision of money and what it can actually do for me. Instead, I allowed my ignorance and societal norms to control my decision making.
If you are reading this post, there is a good chance you are in the same boat as I once was.
Don’t worry, it’s possible to fix this and below you’ll learn how to make money work for you.
What Does It Mean to Make Money Work For You?
Making money work for you simply means that you are in control of your money, you are working towards financial stability, and are putting your money somewhere specific where your money can grow on its own over time.
This means you have a detailed understanding of what income you bring in, your expenses, types of investments, how money can be used as a tool, and much much more.
Plus, as you better master your finances, you may find yourself reaching financial independence sooner or even building generational wealth.
While getting your money to work for you might just sound like it’s about investing, it actually involves quite a few steps that put you in control of your finances and help you plan for the future.
Here are some of the best ways to make your money work for you.
How Do You Get Money to Work For You?
1. Learn how to budget
Having and managing a budget is one of the best ways to start making your money work for you, because it allows you to see clearly where every cent is going and make plans for the future.
Creating a budget does not have to be complicated or too detailed. Start by simply tracking where your money is going. Either export your bank statement to an Excel sheet, or use a budgeting app like Savology that can keep track of everything for you.
You’ll want to monitor your expenses, investments and where you’re putting your savings. Remember that what gets measured gets managed, so managing your money is a lot easier when you’re measuring it.
Next steps
Once you have everything tracked, create a plan. Ideally, how much do you want to be spending on groceries? On holidays? Should you be spending more on savings and on your goals?
Working with percentages is a good and easy way to make a plan for your money, which is why the 50/30/20 method works well: 50% goes to needs, 30% to wants and 20% to savings.
You can also choose to use a budgeting app to make it easier to track your spending and make a budgeting plan.
With a free tool like Savology, you get a free financial plan that helps you meet your personal finance goals. You can also opt for a move advance program like You Need A Budget, if your finances are in need of more serious help.
2. Get out of debt
The less debt you’re in, the less interest you’ll need to pay in the future. That’s why paying off your debt as soon as possible is a great way to make money for you.
Although there are some loans that are difficult to pay off early (such as a mortgage), some other loans should be paid off as soon as possible.
If you have credit cards and are paying 15% – 20%+ in annual interest, then paying off your consumer debt as soon as possible will save you potentially thousands in interest.
Debt pay off strategies
There are a few good ways to get out of debt, with the two main methods being the snowball method and the avalanche method.
With the snowball method, you pay minimums on all your debts and pay more money on the loan that has the lowest balance — the one you can get rid off the fastest.
The avalanche method involves tackling the balance with the highest interest first and working your way down the “debt mountain.”
3. Establish an emergency fund
Having six months (or more) of living expenses stored in cash is a great way to make money work for you.
- Firstly, you can decide to put the money in a high yield savings account, where it will accumulate interest over time.
- Secondly, using your emergency fund rather than an expensive credit card when you need to pay for something unexpected will also save you money in interest or overdraft charges.
Building an emergency fund does take time, but it pays off financially and emotionally. Make sure to research the best savings account, and be aware that some do set limits on how much money you can withdraw per month or year.
Many online-only banks offer great features to help your emergency fund money grow. Every bit you set aside for emergencies will be helpful.
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4. Master your credit scores
Your credit score is a three-digit number that rates how trustworthy you are when it comes to paying off debt. A high credit score is above 800, and a low or bad score is usually around 580 or less.
A good credit score will offer you a much better interest rates when you’re taking out a loan. And having a great credit score is an excellent way to put your money to work because it can save you thousands in interest payments.
According to My FICO, a low credit score could end up costing you over $100,000 more in interest on a mortgage of $350,000, for example. Just by putting a little effort into your credit score, you can end up saving thousands.
5. Invest in retirement accounts
Investing in retirement accounts is one of the best ways to make your money work for you.
That’s because retirement accounts allow your money to grow tax-free and also accumulate free monetary contributions from your employer.
Every month, some of your salary is invested in a retirement account like a 401k. Depending on your employer, you may be also offered a match up to a certain percentage of your contributions.
Your money will grow over time and you won’t need to pay taxes on them until you withdraw them at the retirement age of 59 ½.
You can also choose to contribute to other tax advantaged accounts such as a Roth IRA, Traditional IRA and 529s. With these accounts you’ll be contributing “after-tax” dollars that will also compound over time and won’t require paying taxes when you withdraw later on in life.
And don’t worry, you can also invest with a little money too. There are many options where you can invest spare change or as low as $5.
6. Consider a health savings account
A health savings account is a health plan that you can use to pay for medical expenses if you’re enrolled in a high-deductible health plan.
It puts your money to work because you don’t pay taxes on it, and you can pay for eligible medical expenses tax-free.
You can contribute to your HSA even when you’re not working, and the money in the HSA is yours forever.
Platforms such as Lively offer a Health Savings Account for both employers and individuals and keep the process user friendly and straightforward. It offers payroll syncing, paperless account management and a transparent pricing structure.
7. Start a lucrative side hustle
You can also put your money to work for you by investing in a side hustle. Side hustles are a good way to make additional income while still working a full time job.
Part-time or under the table jobs are options, but getting involved with a side hustle that you can do from your computer means you have a lot more flexibility and freedom.
Your side hustle could be something like freelance writing and designing, or even setting up an online business like a website or online shop.
Doing something that is fun and also builds your skills means your side hustle can also double down as a hobby. If you invest in something like a website, that money will eventually work for you and make you more money in the future.
8. Invest in real estate
Real estate is one of the most popular way to make your money work for you. Investing in real estate does require some specialist knowledge as well as a larger upfront contribution to your down payment.
The most popular way to make your money work for you with real estate is to invest in rentals. This basically means buying a property and renting it out to people who will live in it.
Ideally, the rent from your tenants would also cover for your mortgage along with a little extra on top. Over time, your tenants will be paying off your house and once you own it outright, the income will be essentially passive.
Another method is to flip houses, which basically means purchasing properties, refurbishing and upgrading them, and then selling them for a profit. Once again, you will need time, money and energy to get started, but once you get going it’s easier to keep the ball rolling.
Additional real estate investing options
If you’re not ready to commit a large amount of capital to a down payment yet, you can still get into real estate through REITs.
A REIT is basically a fund managed by a company that is in charge of all the property management. As an investor, you’ll be part of the process and therefore receive dividends on the purchases, gains and losses.
You can buy REITs through a traditional broker, or choose to buy a REIT ETF through a platform like Vanguard.
The other option is to look into real estate crowdfunding platforms, like Fundrise or Diversyfund. Both offer ways to invest in real estate with as little as $500.
9. Invest in yourself
As Benjamin Franklin once said, investment in knowledge pays the best interest.
Your skills and talents will be with you for your entire life, so investing in them early on can pay off in bucket loads in the future.
Put your money to work for you by buying books, taking courses and even going back to school. It doesn’t always have to be related to your career, simply be curious and explore anything that piques your curiosity.
Anything from public speaking, writing, cooking or learning a language can pay off in unexpected ways in the future.
How are you making money money work for you? Are you doing any (or all) of the above currently? Let me know how you’ve taken control of your finances below!