You may not believe us when we say, but there is more money waiting for you with the limited amount that you have right now. We’re talking about “making money work for you” instead of you working for the money! It is another way of investing in something that will bring in more cash for you. It's important to save, be ready for financial emergencies, and to have a solid plan for retirement. Follow the steps given below and start raking in some extra green for yourself.
1. Open Up A Savings Account
Before you can get your money to do the heavy lifting for you, you will want to open up an emergency savings account with about six months of your living expenses stored in cash. The smartest place to put all of that is in an FDIC-insured high-yielding checking or savings account. Usually a savings account these days will offer an interest rate of about 0.01% which isn't great. However, there are high yield savings accounts with 1% or higher returns and much more lucrative options like money markets or certificates of deposit. It's a balancing act though between getting a modest return on your savings and keeping your assets liquid if needed. Instead of putting your money under the bed or mattress, you can at least earn a small return on what you save. But keep in mind the annual increases in cost of living (1-3% usually).
2. Analyze Risk And Reward
Higher risk does not necessarily equate to higher reward. If anything, a higher risk gives a higher potential for reward. For example, making an investment in a risky venture like a biotech startup in the hopes of reaping a higher reward for it, is utterly irresponsible. Your money will drop like a ton of bricks tomorrow. The point is that investing in a single stock is way riskier than investing in a pile of stocks. Investing in a startup that you have not researched upon is too much of a risk. If it does succeed, you will get a massive return on your money overnight, which is something you don’t get from safer companies like GE and Walmart. Risky investments aren’t bad, but they aren’t necessarily good either. You just have to find a proper balance between your tolerance for risk and demand.
3. Contribute To Retirement Accounts
Putting your money in a retirement account can help it grow faster without the burden of taxes.The best retirement accounts that you should be gunning for are the 401(k)s and IRAs. Build up your tax exempt 401(k) with compounding interest, dividends, and/or employee contributions and by the time you are 59 1/2 or older you'll have a strong account you can liquidate without penalty. The key is to save as much as possible so that your money can work for you tax-efficiently and get more money in the markets. The HSA's is another great option. Let’s say of you have healthcare costs, you just pull money out from it and not pay taxes on it. By the time you turn 65, it will turn into an IRA. The other good news is that you will not get penalized for it when you use it for other costs. You can pay for your Medicare costs as well as long-term care premiums.
4. Enjoy Compounding Interest and Dividends
For as long as you leave your money in your account, it will continue to work for you. You could be in a serious pinch with equity valuations, but you will be good in the long-run because the global economy as a whole will usually grow. There are many investments that pay out cash dividends and interest. Just make sure that you keep your investment portfolio diversified!
5. Pick The Right Credit Cards
If you are going to use a credit card, then you should consider using one that comes with rewards that are in line with your lifestyle. For example, airline mile cards are not for people who don’t like flying or travel in general. It usually makes sense to get a card that earns you 1-3% savings on every purchase, which you can redeem as cash or a statement credit. That way you aren't limited by the "points" you earn. If you pay your credit cards in a timely fashion without incurring fees you'll end up getting a return of almost 2% depending on what you purchase.
Since credit cards can create debt, you should have the appropriate cash flow and predictability to enable you to pay the bills every month. When you pay the full amount each month you'll end up building your credit rating which is critical for major loans and purchases down the road. Good credit now can help you get a lower interest rate on mortgages or your car payments.
Maintaining a strong financial record and savings / investment portfolio should be a top priority. The success of your money management will have far-reaching consequences when starting a business venture, buying a home, retiring, and much more.
Author Bio: Catherine Daisy works as an Editor-In- Chief at UAE Assignment Writing. As a blogger, she has a knack for writing on topics that include Personal Finance, and Careers. In addition, she is adept providing services in UAE assignment writing.
I hope you enjoyed this article about ways to make your money work for you!
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