How to Make Your Money Work for You

Are you tired of watching your hard-earned money slip away each month with nothing to show for it? Making sound financial decisions can be difficult, especially in today’s economy, but understanding how to make your money work for you can lead you to long-term financial stability. If you’re ready to stretch your dollars further, this article will explore nine ways to put your money to work for you.

Creating a monthly budget will help you take control of your money and prioritize where it goes. The process starts by listing all your sources of income and adding them up. Then, identify your monthly expenses and categorize them into essential and non-essential. Make sure that your essential expenses are covered before allocating any remaining income to non-essentials. You can also introduce a savings category to help you keep track of the money you intend to save each month. Don’t forget to track your expenses regularly to make sure you are sticking to your budget and making necessary adjustments where you can improve your financial stability.

Emergencies happen when you least expect them, and having an emergency fund can help you deal with them more efficiently. Creating an emergency fund can help you avoid relying on credit cards or loans, often leading to long-term debt. Setting aside three to six months' worth of living expenses is common, but you can set any amount that you’re comfortable with setting.

Put your emergency fund in a separate savings account that is easily accessible but not too tempting to spend on non-emergency situations. It’s also best to treat your emergency fund like a bill and make regular contributions, no matter how small they may be. Building an emergency fund takes time, so stay consistent and don't give up.

When you’re in debt, it’s easy to feel like you’re working just to pay off your bills. But by taking the time to pay off any high-interest debt, you can free up money that can be used to work for you. Reduce the amount of interest you’re paying on your mortgage, car, student, or personal loans to free up funds. If possible, pay loans off early, make extra payments, or see about restructuring to obtain lower interest rates. When you're no longer paying interest on credit card balances or loan payments, you can use that money to invest in your future. Whether it's starting a business, saving for retirement, or taking a dream vacation, paying off debt is the first step in building a financially secure future.

One of the most straightforward ways to start making your money work for you is to swap out your low-interest savings account for a high-yield savings account. Online banks frequently offer these accounts, which generally give depositors higher interest rates than their brick-and-mortar counterparts.

So, just by switching accounts, you could increase the amount of interest you’re earning and still maintain the safety of FDIC insurance, a government program that protects you up to $250,000 per account should your financial institution go under. A high yield savings account may be a good place to park your emergency fund, because every extra bit of interest income helps.

Retirement savings accounts, including Individual Retirement Arrangements (IRAs), 401(k)s, and Healthcare Savings Accounts (HSAs), combine the benefit of tax-deferral (you pay tax when you withdraw the money, not now) with the power of compounding, two great features that make your money work harder for you. For more on compounding, read “What is Compound Interest & How is it Calculated?” 

Additionally, many employers match your contributions, which can add “free money” to your account. As a result, it may be a good idea to prioritize contributions to retirement accounts to help make your money work harder for you, at least to the level that maxes out any matching funds.

Investing in stocks or mutual funds can be a good way to make your money work for you, but it often requires a long-term commitment – at least 3-5 years – so that you can ride out market fluctuations. Holding stocks of quality companies for long periods of time, rather than trying to time the market for speculative quick wins, is the route investment gurus recommend to achieve market value appreciation – which is how they say “make my money work for me.” Common investment measures, such as the Standard & Poor’s 500 Index, show 10% average annual returns since the stock market’s inception in 1926.¹

An investment strategy that includes dividend-paying stocks may be even better suited for developing passive income streams. In addition to market appreciation, good quality stocks that pay dividends can give you cash regularly, which you can bank or automatically reinvest.

A rewards credit card program can be an easy way to make your money work for you if your budget allows you to pay off your credit card balances every month. Earning rewards that are valuable for your lifestyle just by using a particular credit card is effortless. Double-check that you’ll earn rewards on the types of purchases you typically make, and be sure you don’t begin to carry a balance. For more about different credit card rewards programs, read 'Level Up' Your Understanding of Amex Card Levels.

If you own a home or a car, you might want to consider renting them out when they are idle. Many online services can help you market your home to people looking to rent vacation homes. The services charge a fee but can greatly reduce the level of activity you need to start generating a passive income stream. Similarly, services exist for sharing car rentals, allowing your car to make money for you when you’re not using it.

Investing in real estate, whether for your own use or for rental, puts your money to work for you. Real estate appreciation can passively build wealth in the right market. In fact, rental income is probably one of the most well-known examples of passive revenue – although many might argue that being a landlord takes a lot of energy. But if you’re up for the challenge, investing in real estate can be an invaluable addition to your financial portfolio.