Wealthy people don’t typically become wealthy by sitting on their hands. For the most part, they leverage what they have to become even wealthier. If you aren’t putting your money to work, you’re missing out on a chance to join their ranks.
4 Ways to Grow Your Money
It’s very difficult for the average person to build wealth on a single stream of limited income. But you don’t necessarily need a second or third job to become rich. The solution is to put your money to work by using your existing money to make more money. Here are some preferred ways to grow your wealth in this manner:
Investing is a big part of building wealth. But before putting money into other investment vehicles, make sure you have emergency savings account in place. The common rule of thumb is to keep between three and six months of expenses in your savings. If you typically spend $5,000 per month, this means you need $15,000 to $30,000 in savings.
You aren’t going to get rich putting all of your money into savings, but there’s something to be said for putting a chunk of your net worth into a safe, interest-bearing account that gives you financial flexibility.
The benefit of a savings account is that it’s safe – typically backed by the government – and highly-liquid. If you need to purchase something, you can generally use a debit card that’s linked to the account to make an immediate purchase. But even if you don’t have a card, you can visit the bank or ATM and make an immediate withdrawal.
There are generally two types of interest rates on savings accounts: base interest rate and conditional bonus rate. While you’ll be hard-pressed to find banks offering conditional bonus rates in today’s marketplace, you can compare the base interest rates of different institutions to find one that provides a fair yield.
Once you have an emergency fund squared away and have enough liquidity to make ends meet, you should take some cash and invest it in mutual funds. While less liquid than a savings account, you can still get your money out of a mutual fund fairly easily. This makes it a great hybrid product – giving you access to better interest rates without tying up money for years at a time.
The thing to note about mutual funds is that they produce varying rates of return. If you’re planning to pull your money out in a year or two, a mutual fund can be hit or miss. You could easily lose 10 percent of your money or earn 20 percent – you never know. But if you’re investing for longer periods – say 10 or 20 years – historical trends say you’ll always come out with a positive return on investment.
Income-Producing Real Estate
There’s a reason a large percentage of wealthy Americans are invested in real estate – it works! If you want to grow your money, income-producing real estate is one of the most effective methods. Whether it’s single-family residential properties, commercial office space, retail storefront, raw land, or some other method, you can regularly bring in double-digit annual returns. Not bad!
Hard Money Lending
Once you have a considerable cash cushion under your belt, you may find that you can make money by giving out loans to people – much like a bank would. This is known as hard money lending. Depending on the amount you’re willing to give and the type of investments you’re comfortable investing in, you can make a pretty decent annualized return without doing anything (other than taking on some risk).
Hack Your Way to Wealth
“It helps to have a specific set of goals that you are saving for and investing in since it will help focus your spending and give you motivation,” personal finance expert Miriam Caldwell suggests. “Think about the things that you need to pay for like your child’s education, purchasing a home, or early retirement. These goals may also drive what types of investments you choose to use.”
There’s no singular method for attaining and building wealth. If you’re like most people, you won’t consistently earn a six- or seven-figure salary that allows you to build massive amounts of wealth on your primary income alone. Instead, you’ll need to put your money to work and use things like savings accounts, mutual funds, income-producing real estate, and hard money lending to grow your net worth and establish financial security.