People generally have one common goal after growing up; to make money. They tend to take up jobs, work hard and make ends meet. But what if we tell you that there are other easy ways of making money “without working”. While everyone tells you to invest money so that it works for you, no one actually tells you how to make it happen.
Read this blog further to know how to make money work for you, rather than you working for money.
Buy assets to beat inflation
Inflation; the time when the cost of living in a country increases over a given period of time. Inflation indicates the increase in the cost of goods and services while your wealth gets eroded. They actually work against you. For example, if the current rate of inflation in India is ~5%. Then investing in an FD with 4.5% returns will set you back by 0.5%. Thus, buying assets that beat inflation is one of the most efficient ways to make your money work for you.
- That’s the reason why investors tend to buy market-linked assets like stocks or mutual funds. These assets generally outpace inflation. The average returns generated by top-quality stocks range between 9-12%. Mutual funds can potentially generate between 6-15% returns.
- The value of gold and silver appreciates with time. Taking into consideration a longer time period, the gold price appreciation rate can beat inflation. You can start a SIP in gold-based ETFs or mutual funds and keep contributing till the long term.
Passive Income Sources
Passive income has to be one of the most delightful ways to make money. Passive income is money that flows in regular intervals without the need for putting in a considerable amount of effort to create it. Generally, you invest your money in a product that will generate an income. In simple terms, your money earns interest and grows while you sleep. Some of these sources of passive income include:
- P2P lending
- Consumer loans via merchants
- Asset leasing
- Dividend stocks
- Dividend Mutual funds
- Rental income
- Assets that pay an annuity
Invest in Real Estate
The most common way real estate offers a profit: is that it appreciates i.e. it increases in value. Location, development, and improvements are the primary ways that residential and commercial real estate can appreciate. Inflation can also play a role in increasing a property’s value over time. After all, most real estate investors have to take out a loan to buy these properties. The baseline expectation is always to earn a profit that’s greater than the loan and interest combined. But investing in real estate is a long-term play in terms of buying and selling.
You can also make money in the form of income from rents for both residential and commercial properties, and companies may pay you royalties on raw land, for example, for any discoveries, such as minerals or oil. Real estate investment trusts (REITs), mortgage-backed securities (MBSs), mortgage investment corporations (MICs), and real estate investment groups (REIGs) are investment alternatives within the real estate sector.
Know Your Net Worth
Net worth means the difference between the value of the things that you currently own, such as your residence, your retirement funds, investments in mutual funds, bonds, insurance policies, your bank balance, etc and subtracting your liabilities such as loan payments, credit card dues, mortgages, taxes, etc. Net worth is considered to be an important metric of your financial health, as it helps you keep a tab on just how much your debt can weigh in on your future wealth.
Making your money work for you is only possible if you have a healthy net worth. Here “healthy” implies that you’re debt-free. In this case, being debt-free implies not taking out a loan to keep up appearances. For example, buying the latest iPhone or the trendiest car. Therefore, if you have existing debt in the form of a home loan, then start paying it off and invest in quality assets that can bump up your net worth simultaneously. To increase your net worth, start minimizing your expenses, investing more, and clear off your high-interest debts on a priority basis.
Invest In a Business
This is one way to put your money to work but it may not be accessible to everyone. Why many people choose to invest in a company is because it pays a dividend. A company that achieves positive earnings growth per share and regularly distributes a dividend is often considered a safer, more stable investment than investments in companies that do not pay a dividend. With some hard work, a lot of planning, and at least a little luck, passive income is possible for business owners. You just have to find a viable, strong business opportunity, create processes that are easy to emulate and maintain and find leadership you can trust to handle the company for you.
When you invest in stocks or other marketplace assets, you can’t decide what happens to all of the profits associated with the investment. That investment is in another company or organization; if that entity turns a profit, it then decides how much of that profit is shared with stockholders. If you own a business, you get to decide where profits go, and as long as you go about it legally, they can even end up in your pocket.
Save While You Spend
Investing isn’t the only way to make your money work for you. While investing can provide you more money, saving, cashback, rewards are some other ways to add some money to your pocket. For example, bargaining – never hesitate to spot and buy a bargain to save an extra penny. That extra penny saved can go towards other things or even investing. Other ways to save money include claiming cashback and rewards in a smart way. The same principle applies – save money and direct it towards investing or personal expenses.
Start A Retirement Fund
As most of us don’t have the luxury of earning a pension just like our parents and grandparents did, so it’s important to make a part of your money work for your post-retirement life. The approach has to be goal and risk-based with a special focus on covering all your bases – short-, medium-, and long-term expenses. Retirement planning should include determining time horizons, estimating expenses, calculating required after-tax returns, assessing risk tolerance, and doing estate planning. The potential assets for this purpose include:
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- Pension funds
Making your money work for you is part science and part art. The science part involves identifying your risk profile and investment goals. The art involves investing in solid assets with top-notch financial advice.
Recommended Read: 12 good money habits to make you wealthy