Working for your money is one thing. But making your money work for you is another altogether—an act that elevates money beyond a paycheck, maximizing its benefit by using it to grow wealth and create life opportunities. When you set the goal of making your money work for you, you’re thinking beyond the cycle of earning and spending; you’re aiming to use your money to give you the life you want.
How can you go about making your money work harder for you? Here are three ways to get started.
Chip Away at Debt
Carrying debt is like wearing a heavy backpack. At first, it might not seem so bad. But as the miles wear on, the burden feels increasingly heavy. You find yourself depleted more quickly from trying to carry all that extra weight on your journey.
Debt bogs down your progress in a few ways—financial, mental and emotional. First of all, it can be downright stressful to worry about owing money to creditors. Then the financial drain kicks in as interest accumulates until you’re paying money just to borrow money, which is counterproductive.
Chipping away at your debt is the first step toward making your money work for you. Many consumers swear by one of two popular methods: debt snowball vs. debt avalanche. Assuming you pay the minimum on all your debts, each of these two methods provide a different strategy for tackling your debts one by one.
Debt snowballing means working from smallest to largest. So, you budget aggressively to free up extra cash then throw it at your smallest debt. Once that one’s paid off, you start in on the next largest. The advantage here is that snowballing tends to keep motivation high because you see results faster.
Debt avalanching means working from highest interest rate to lowest, regardless of balance. The advantage here is that many people find they save money in the long run by knocking out the steepest interest first.
Regardless of which debt repayment strategy you choose, the first step is budgeting effectively to free up the funds you need to tackle your outstanding debts.
Budget for the Big Picture
Raise your hand if you’ve ever fallen behind on budgeting. Now that all of our hands are raised, let’s look at the reasons why it’s so easy to backburner the important act of budgeting.
Well, budgeting in the past took more time and effort. Now we have mobile apps available at our fingertips to help us figure out how to manage money. Clarity Money, one free-to-use app available to iPhone and Android users, helps consumers:- Cancel unwanted subscriptions- Check their credit score- Set specific savings goals- Track spending by category
These functions help people reduce unnecessary spending, prioritize their most important savings goals and understand their spending habits. Only by acknowledging your behavior can you make positive changes.
And all these “small” changes add up to big ones: Like making more money available each month to pay down debt, build your emergency fund, saving for long-term goals and invest.
Take Advantage of Interest
We hear financial experts say it over and over: Start saving for retirement as early as you can. When you’re 25, it’s easy to brush off this advice as something meant for older people. But investing early pays off, big time. Why? Because compound interest is a powerful principle that makes your money grow.You can harness the power of compound interest on investments or in certain savings accounts, too.
Compound interest essentially means you earn interest on your balance and its interest over time. Here’s a simple example from U.S. News & World Report. You put $5 per month into a savings account and earn 5 percent compound interest on that small contribution. Over the course of 10 years, you’d have contributed $600. But your account will actually have $776 in itbecause your interest has been earning interest! If you wait another 15 years, you’ll have more than $1,5000 waiting for you.
Earning money on the money you already have is a great way to make your money work for you. To get to that point, you’ll need to address any debts you have and budget efficiently.