Pay Down Your Debt
The most important thing that you can do to make your money work for you is to pay down and eliminate your high-interest debt. This includes things like credit card payments, some auto loans, and other types of consumer debt. You may be paying up to 20% or more in interest — which means that when you put money towards paying off that debt you’re getting a 20% return on your investment. It’s hard to beat that kind of guaranteed return.
Start a budget, figure out your income and expenses and start paying down that debt. The exact debt repayment strategy that you use is less important. What is important is that you make a plan and start sooner rather than later. Once you have eliminated your high-interest debt, you can start with the other suggestions in this article.
Open a High-Yield Savings Account
One place to start can be to open up a high-yield savings account that is separate from your checking account where you keep the money to pay your regular monthly expenses. This is important for two reasons. The first is that keeping your savings separate from the money you use for your regular savings helps keep you from raiding your savings to pay your bills.
The second reason is that a savings account may offer slightly higher interest rates than a checking account. Currently, interest rates are at historical lows. That is great for refinancing or taking out a mortgage, but not great for savings accounts. Still, a high-yield savings account is a great place to put your emergency fund money. For anything more than that, you’ll want to look at investments that offer higher returns.
Grow Your Wealth Through Investing
If inflation hovers around 2-3% every year, any investments you have should make at least that much. Otherwise, while you may have more money, that money will be worth less than it was the year before. If all of your money is in a savings account earning 1% interest or less, then you are actually LOSING money to inflation each year. There are many ways to earn residual income, and you’ll want to pick the one that makes the most sense for you. As one example, Investing in the stock market has historically returned around 7% per year.
Take Advantage of Credit Card Rewards
Another way to make your money work for you is to take advantage of credit card rewards. Many credit cards offer rewards of up to 5% back or more in certain spending categories. There are also several cards that offer initial welcome bonuses that are worth $1000 or more. Taking the time to strategically use credit cards can be a worthwhile investment. Check out our list of the best rewards credit cards to see if one of them might make sense for you.
Start a Passive Income Stream
The holy grail of financial independence is passive income. Passive income is income that continues to make money with little to no day-to-day involvement on your part. There are many different ways to generate passive income. A few passive income ideas might be creating and selling crafts, writing a guide or book, starting a blog, or investing in the stock market.
Investing time and money in real estate can also be a way to earn (relatively) passive income. While rental real estate is not without complications, when it is all working, each month you earn rental income. That helps pay down your mortgage balance, hopefully with some extra left over each month. If you think that becoming a landlord is not for you, another way to invest in real estate is through a Real Estate Investment Trust (REIT). REITs combine some of the best parts of real estate and investing in the stock market.
The Bottom Line
There is an important difference between earning money and having your money work for you. While earning money through a job is important, the real key to financial security is earning passive income. Pay down your debt, start investing and watch the returns come in. You may not make money while you sleep, but following these tips will help set you on the right financial path.