If you’re in the fortunate position to have a bit of extra income that isn’t earmarked for expenses and you’re wondering what to do with it, there are a number of options to grow your money.
We asked financial experts to explain the 10 smartest ways to make your money work for you.
Open a High-Yield Savings Account
If you have your money in traditional savings accounts, you’re missing out on interest you could be earning. Enter the high-yield savings account, which functions the same as a regular savings account except that it offers a greater annual percentage yield. You do have to pay taxes on that interest, but it’s likely to still net you more money than a regular account. And the longer you leave your savings in a high-yield savings account, the more you’ll save with compounding interest.
Create Specific Financial Goals
Setting aside money from each paycheck into a generic savings account can feel unproductive and that there is no end in sight. In order to make your money work for you, start by outlining specific financial goals you want to work towards.
“Planning for your future financial needs can be difficult, without goals or plans to help you visualize how much you have today and how much you will need in the future,” said Adrian Oropeza, head of product at Milli Bank. “If you are looking at purchasing a new car or vacation, you don’t need to know the exact amount. Do some research and get an estimate of how much you need to save and commit to a date. Each month allocate money towards your goal and track your progress. As you get closer you can adjust as needed.”
Automate Your Finances
In this digital age, it’s now incredibly easy to automate your finances in just about every way you can imagine, from automatic bill payments to automatic investment contributions.
“The hardest part of saving for something is remembering to do it each month before you spend it on something else,” Oropeza said. “Automating your saving reduces the chance that you will use it on something that will give you short-term happiness but keeps you further from what might matter more to your long-term financial goals.”
Plan for Each Dollar
To make your money work for you, have a plan for each dollar that comes in.
“Have you ever heard that every dollar you earn should have a job? It may sound odd, but it helps you make sure that your money is working for you,” said Bethany Wilson, head of marketing at Milli Bank. “By outlining where each dollar of your paycheck goes (ex: mortgage, groceries, college savings, etc.) you’ll have an opportunity to put excess funds into a savings account or invest it, giving you more money for the things that matter most. Create your savings goals and rank those goals by what is most important to you. From there, assign each dollar to the goal you want it to help you achieve!”
Get Rid of Your High-Cost Debt
You can’t grow wealth into the future if debt is holding you back, said Christopher Sioco, COO of Parachor Consulting.
“High-cost debt kills long-term wealth,” he said, pointing out that credit cards typically have interest charges as high as 35% per year while a personal loan could have interest charges of 20%.
“With such high-interest rates on loans, you cannot create wealth,” he said. “Get rid of high-cost debt as soon as possible. By paying off a credit card in full, you earn 35% on your investment and can put the savings to better use.”
Invest in Real Estate
If you have enough money to make down payments on property, investing in real estate is a great way to make your money work for you, said Omer Reiner, president of FL Cash Home Buyers, LLC, a real estate investment company.
“When you own a property,” Reiner said, “you control how you want to make money from it. You can rent it out, fix it up to sell it, add value to increase rents, etc.”
Invest in the Stock Market
To really grow your money, your best bet is to invest in the stock market, by purchasing individual ETF’s (exchange traded funds) and mutual funds in a “model portfolio,” according to Johnny Medina, CEO of Nabla Financial.
“The general concept is very simple: Save at least 10% of your gross income. Invest the savings with a long-term mindset and leave it to compounding to do the rest.”
For example, if you start with $10,000, save $1,000 each month and invest in a portfolio that will yield 10%. After 30 years, you would have $2.3 million.
Invest in S&P Funds
Another type of fund likely to yield good, reliable results — and which historically yields an average 11% annual return — is the S&P fund.
According to Andrew Lokenauth, CEO of Fluent in Finance, “The S&P 500 comprises 500 of America’s largest companies, across all 11 industries. Investing in the S&P 500 is an easy and stress-free way to invest for the majority of people, because you’re not betting on a single company but 500 of America’s largest companies.”
Invest in Indexed Mutual Funds
Indexed mutual funds are also a great way to grow wealth, advised Carter Seuthe, CEO of Credit Summit. These funds work by investing equally in every stock in a given exchange, such as the Dow Jones or the NASDAQ, he explained.
“They have consistently been shown to outperform most actively managed investment accounts,” he said, “and come with the added benefit of avoiding the fees that come with intensive management.”
Indexed mutual funds provide a good return without a huge amount of risk, he added.
Use a Rewards Credit Card and Pay It Off Each Month
Aside from saving and investing, a simple way to earn money is to use a rewards credit card without an annual fee, “an excellent tool for financial growth,” said Kasey Ring, personal finance expert at Upward Personal Finance.
As long as you pay off your balance each month, she said, “You can add hundreds to your bottom line each month just by spending your money with a different tool. It takes discipline, but getting rewards for using the bank’s money free of charge every month makes sense and financially savvy people do this.”
More From GOBankingRates