Saving money is not as simple as it sounds. Keeping your hard-earned cash safe and growing it are challenging tasks, particularly in this age of financial uncertainty. It is no wonder that many people are reluctant to trust their savings with a third party or an untested new company. The good news is there are many ways to put your money to work for you so that it generates returns instead of sitting stagnant in a bank account doing nothing.
If you’re ready to take your savings to the next level, check out these five tips on how you can make your money work for you.
5 Ways to Make Your Money Work for You
Do you have savings? Or do you spend everything you earn and could never afford to retire? Do you see your money as a finite resource that needs to be managed carefully, or as something that can grow if given the right conditions? Unless you are one of the lucky few who have inherited wealth or won the lottery, chances are that your answer is somewhere between these two extremes. Money is an important part of everyone’s life and having the right kind of financial strategy can go a long way toward improving your circumstances. Here are some ways to make your money work for you.
Pay Yourself First
The best way to ensure that you have enough money to meet your needs in the future is to pay yourself first. This means that you set aside a portion of your income and put it towards your future needs in a systematic manner. Some people find that they are more successful at this if they have a separate savings account, while others prefer to have their savings deducted from their monthly paychecks. You can also use your retirement plan as part of your savings strategy. However, once you retire, you won’t have access to that money until you are of a certain age. Make setting aside a portion of your income a priority so that you don’t need to worry about how you will make ends meet in your later years.
Start an Emergency Fund
An emergency fund is a savings account that is set aside for unexpected expenses. It is recommended that you have three to six months’ worth of living expenses saved in case you experience a job loss, have to go on temporary disability, or have a sudden, large medical expense. Having this money saved in a separate account means that it is not at risk if you use your credit cards or have to take out a loan. If you wait until you actually need the money in order to start saving, it will be much harder to accumulate a sizeable amount. Start small and increase the amount that you are putting into your emergency fund as soon as you are able.
Create a Budget and Stick to It
Most people have a rough idea as to what they need to earn in order to meet their financial obligations. In many cases, though, people spend more than they earn, putting themselves at risk of being unable to pay their bills on time. While it is not uncommon for people to overspend in the beginning of their careers, it is also a habit that many struggle to kick as they get older. Budgeting is the best way to ensure that you are spending only what you actually have. If you are single, you might be able to make do with a simple spreadsheet, but if you have a family to support, keeping track of all your finances is best done using an app. There are many to choose from, so find one that suits your needs and use it to track your income and expenditures. Having everything in one place will make it easier to identify areas where you could be more frugal and make adjustments as necessary. If you are already living within your means, congratulations! There is still more that you can do to make your money work harder for you.
Invest Through an Automated Process
Once you have established an emergency fund and have built up your savings account, you can look into investing some of the money that you have left over. There are a number of different ways that you can invest your money, and some are more appropriate for younger people than others. It is important to talk to a financial advisor about the various investment options that are available before making a decision. While saving money in a savings account will not grow at a particularly high rate, it also doesn’t come with any risk. Investing your money, on the other hand, means taking a small amount of risk in order to have a chance to earn a large amount of money in the future. Be sure that you are comfortable taking this risk before you start putting money into the stock market or other high-risk investment vehicles.
Take Out Bigger Loans While You’re Young
While it is generally a good idea to pay off any credit card debt that you have as quickly as possible, paying off your student loans is not always a good idea. Rather than putting as much money as you can into these accounts as soon as you start earning a steady income, consider taking out a larger loan and investing the money that you would have otherwise used to pay off your loans. This allows you to take advantage of the compounding interest that comes from having a significant amount of money invested in a single fund. With the increased interest rates, you will be able to pay off your loan much more quickly, and you still have the opportunity to invest the original amount that you took out. This is especially important if you are younger, as your loan payments will be smaller, allowing you to pay them off faster. Once you have paid off your loan and have built up some savings, you can then start paying back the investment loan. This will allow you to put your money to use in a more productive way that will help your money grow.
Make Your Money Last Through Annuities
If you are worried that your investments won’t last as long as you do, or if you have a family member who may outlive their savings, you can use an annuity to ensure that you have enough money to last throughout your lifetime. Annuities are contracts that require you to make regular payments, and in return, you receive a steady income stream for as long as you live. This allows you to make sure that your money lasts as long as you do without significantly increasing your risk. While there are many different types of annuities, some are better than others, so be sure to speak with a qualified financial advisor before making a decision.
Making your money work for you means making sure that you are putting the maximum amount of it toward your future needs. This can be done by setting aside a portion of your income and putting it in a savings account, by starting an emergency fund, by creating a budget, by investing in a higher risk fund, and by making your money last through annuities.