8 ways to make your money work for you

“Make your money work for you” is such common personal finance advice that it borders on being cliché.

But what does it actually mean? And more importantly, how can you do it?

There’s no simple answer — or a single way to do it. In fact, almost everyone can find at least one way to put their money to work. Below, Business Insider rounded up eight methods to get you started. 

SEE ALSO: Former Wall Street executive Sallie Krawcheck reveals the worst investing advice she’s ever heard

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Open a high-yield savings account

Sean Gould, a wealth strategist with Waddell and Associates and a certified financial planner, explains that before sending your money off to do the heavy lifting, you’ll want to have an emergency savings account of about six months of living expenses stored in cash.

A smart place to keep it is in an FDIC-insured high-yield checking or savings account, where it can generate more value as it waits.

A typical savings account offers an interest rate around 0.01%, and a typical checking account is the digital equivalent of putting your money under the mattress. However, high-yield checking and saving offer interest rates that exceed 1% — 100 times what you’d get otherwise.

These accounts are usually available at online banks, which keep costs down by forgoing brick and mortar locations. NerdWallet provides comprehensive lists of high-yield checking and high-yield savings.

Develop streams of passive income 

Passive income is the term colloquially used to define any money earned with little to no effort expended, according to Investopedia.

Once you’ve set it up, passive income streams earn you money while you sleep. Sounds too good to be true, right? But fear not — it’s not a get-rich-quick scheme. Creating any streams of passive income requires an investment upfront, whether of your time or money, but can lead to huge payoffs later. 

Common forms of passive income include real estate investments or silent partnerships in businesses, but it can also be generated by anything from making YouTube videos to using affiliate marketing on your blog. 

 

 

 

 

Store it in retirement accounts

Retirement accounts such as 401(k)s and IRAs are investment accounts, meaning your savings are invested in the market and have the potential to grow exponentially.

“The key is to get money in a 401(k),” says Gould. “Save as much as possible to have your money work for you tax-efficiently and to get money in the markets. The first bucket outside of the emergency fund is the 401(k) up to the match [if your employer provides one]. You don’t want to give away free money.”

After that, Gould explains, you’ll want to put money in an IRA or a Roth IRA.

“Another good tool people don’t think about are HSAs,” he says, referring to the savings accounts for which people with high-deductible health insurance coverage are eligible. “If you sock money away in an HSA you don’t lose it, and whenever you have healthcare costs, you can pull the money out and not pay taxes on it. When you turn 65, it turns into an IRA and you don’t get penalized for using it for other costs — you can pay Medicare costs and long-term care premiums.”

Read more about how to use an HSA.

See the rest of the story at Business Insider

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