How to Make Your Income Do the Work for You

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Working is a fact of life for most individuals, but did you know there are smarter ways to save money? Depending on where you store those savings, you could be earning more. Investing isn’t just for the well-to-do, it can be accomplished by anyone with a few extra dollars to spare.

Take a look at a couple of different ways you can make money simply by having money. This way you can earn more money down the road, and not have to lift a finger.

Invest in a High Yield Savings Account

Saving money is an important, financial cliché heard time and time again. But the truth is that saving money is not only important for unexpected financial disasters, but for your monetary growth as well. Investing money into a high yield savings account can mean earning extra cash annually just for keeping your money in the bank. The national annual percentage yield (APY) for savings accounts are 0.09%. While high yield savings accounts on the other hand, can produce upwards of 2% APY. If a person were to place $2,500 into a high yield savings account, they would earn approximately $50 annually. This may not seem like a lot, but overtime the compound interest and growth will accumulate, leaving you with more money in the long run than what you initially put in.

Store Savings into a Retirement Fund

Retirement is inevitable with age and time. The Motley Fool estimates that the average individual will spend 18 years in retirement. So why not invest any savings into a 401k or Roth IRA as soon as possible? The truth is, the sooner a person invests in their retirement fund, the more money they will earn through interest and thus have more to spend in their older years. There is no set retirement savings amount to aim for, the amount of money a retiree will need annually depends on their state of residence, their lifestyle, and several other factors. According to GOBankingRates, a million dollars in retirement savings could be easily spent in under 12 years based on the state retirees choose to reside. So protect your future, and invest in a retirement fund.

Grow Money through Certificates of Deposit

Certificates of deposit (CD’s), otherwise known as money market accounts, are savings accounts with higher fixed interest rates than traditional savings accounts. CD’s have a set maturity date, so investors have to leave their money untouched for a set length of time. Unlike savings accounts, CD’s don’t allow individuals to withdraw funds whenever they choose because they have a set withdraw date, but the return on a CD is far greater than that of even a high yield savings account. CD’s annual percentage yields can reach upwards of 3%, compared to the average 2% APR of savings accounts. If a person were to save $3,000 in a five year CD with 3.25% APY, they would accrue approximately $488 in interest by the withdraw date. Whereas if they saved the same amount in a high yield savings account with a 2% APY, they would only earn about $300 in the same amount of time.

Invest in the Market

Participating in the market may allow investors to grow their money so long as their money is left alone. The market can rise and dip at indiscernible times, but rather than trying to predict the flow of the market, it is advisable to simply leave the money alone. According to one of the greatest investors, Warren Buffett, it is far more profitable to invest money and ride the ebb and flow of the market than to frequently transfer funds. SigFig, an investment advisor, states that according to their data, “The most successful investors in the group were also the least active.” For a 12 month return, infrequent traders made an additional 4.7% profit when compared to frequent traders who only made 0.13%. So if investing in the market, decide to leave the money alone and let the money grow unguided.

Consider Options and Plan Ahead

There are several safe options for individuals seeking to make a profit through financial investment. But no matter which method is chosen, there are a few things to keep in mind before investing money of any kind.

Consider investing only after you have saved at least three to six months of living wages. This amount should be able to cover rent or housing, utilities, gas, and other necessities. Don’t invest any money unless there is already a sizeable monetary fund reserved for financial calamities. If anything should impact personal finances, the savings will serve as a cushion so that you don’t dip into those investment funds.

After saving three to six months of living expenses and setting it aside, then and only then, should a person look into investment options; then decide if the money you want to invest can be spared. This means, if anything should go awry, you are still able to live comfortably without the money you have invested. If the answer is no, choose to invest in a savings account rather than a certificate of deposit so funds may be withdrawn at any time. But also keep in mind that invested funds with no withdrawal option for a set period of time, may ultimately yield more growth in the long run.

Investing can be tricky, but it’s mostly a game of waiting. So if you have money to spare, and time to kill, allow that financial greenery to grow and flourish under your watchful eye.

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