Last Updated on 8 months by Mohit Pareek
If you want to build wealth and become rich, then you have to make your money work for you.
Money is a tool that provides a comfortable life for our family. It helps us to achieve our goal and fulfil our dreams.
But unfortunately, most of us struggle to earn enough money to meet our day-to-day expenses.
Therefore, we must understand that how can we make our money work for us.
If you don’t find a way to make money while you sleep, you will have to work until you die. – Warren Buffett.
But there is an important question, how can you make your money work for you so that your money can make you more money?
All of us know that no one can become rich just by doing a job for someone else. You have to invest your money in a way that you can earn additional income from your investments. For this, you have to make your money work for you.
You do not have to put your money to work just to become rich. There are many more reasons for this. Let us first know the reasons why you need to make your money work for you, and then we will learn how we can make our money work for us.
WHY MAKE YOUR MONEY WORK FOR YOU?
We all require money throughout our lives, but unfortunately, we cannot work throughout our lives.
We all have to retire one day but even after retirement, the need for money is not going to end.
In the same way, we need money even when we are working. Then we either take a loan or expect a pay-rise.
Now the problem starts from here. As your salary increases, you will become more dependent on your job.
If you are happy with your job, you will work hard, your salary will increase and you will get a promotion and this process will continue in this way.
But what if you are not happy with your job?
The need for money will force you to do work that you don’t like at all. And your life will be spent doing something you don’t like. This is true and it is happening not only with you but with millions of people.
For people who want to get rid of their jobs, they need to know how to work their money for them? Doing so will reduce their dependence on jobs and they will also become financially independent.
The harder your money is for you, the sooner you will be relieved of your job. Apart from this, working money parallel to your job will also generate tremendous wealth for you.
HOW DOES YOUR MONEY WORK FOR YOU?
We all know that no person can become rich unless he earns money from his money.
To make money from money, we have to get our money out of the vault. There are two ways to make your money work for you
- Buy Assets- Whose Value appreciate with time
- Buy Assets- Which can generate income
To make your money work for you, you have to buy assets that either generate regular income for you or whose value will increase over time.
But this is not a new concept. We all know about it.
Then where is the problem?
If we all know the answer to the question “How will your money work for you?”, Then why most of us don’t invest our money to earn further income?
The answer is that most of us lack an understanding of financial knowledge.
From childhood, we were taught to study hard, earn a degree and do a high-profile job to earn a good income.
We are taught how to work to earn money, but unfortunately, it is not taught how our money can work for us.
The result of this is that we keep working for money throughout our life.
WHICH ASSETS TO BUY FOR CAPITAL APPRECIATION?
If you want to build wealth then you have to buy assets whose value appreciates over time.
These are the few assets which you can buy for capital appreciation:
- Gold and Silver: Gold and silver have always been bought for investing purpose. People keep buying gold and silver so that when their value increases or when the money is needed; the need for money can be met by selling these gold and silver.
- Public Provident Fund (PPF): PPF is one of the best tax-saving options in India. Most of us invest in PPF to get exemption benefit in income-tax. Even the interest earned on this fund is also tax-free. If you want to buy assets which are risk-free and whose value appreciates with time then this asset is one of the best investment options for you.
- Equity Mutual Fund: Equity mutual fund is suitable for investors who invest for a long period like 10+ years. The purpose of these funds is to build wealth over the long term. You can start a SIP and contribute for eternity.
- Stock Market: Investing in the stock market is the most beneficial but risky. The returns from the stock market are very high. Therefore, if you understand the stock market and have time to research and study the financial statements about the company, then only invest in the stock market.
Related: How to Select the Best Mutual Fund
WHICH ASSETS TO BUY FOR INCOME GENERATION?
These are the assets in which you can invest in generating income.
- Annuity: In an annuity plan, a person pays either lump sum or regular instalments in the accrual period and receives regular payments as long as he/she lives or for a pre-determined fixed period.
- Fixed Deposit: Fixed Deposit can also generate monthly income. You can deposit lump sum amount in fixed deposit with instruction of crediting the interest directly into your saving bank account every month.
- POMIS: The Post Office Monthly Income Scheme (POMIS) is a Government of India backed a small savings scheme that allows the investor (s) to set aside (save) a specific amount every month. Subsequently, interest is added to this investment at the applicable rate and paid out to the depositor(s) monthly.
- Mutual Fund MIP: These are monthly income plans offered by mutual funds. One such mutual fund is ICICI PRU MIP 25. Start a SIP in a MIP fund and keep contributing till eternity. Once the minimum threshold is crossed, these funds can pay monthly/quarterly/annual dividends as directed.
WAYS TO MAKE YOUR MONEY WORK FOR YOU
It is said that planning a monthly budget is the 1st step in making your money work for you. The person who does not make his budget always complains that his earnings are very low and his financial condition is not good.
But it’s not true
No matter how much you earn, if you do not know how to spend your money properly, then you will always have financial problems.
You will know whether you spend your money properly or not, only when you make your budget.
And if you want your money to work for you, then budgeting should be your first step.
Only your budget can tell you where your money is coming from and where you are spending.
The budget not only tells us the movement of money but also tells us where we are wasting our money and where our money can be properly utilized.
It is important to remember that the goal of the budget is to spend less than you earn.
Get out of debt
Nowadays it has become very easy to take a loan. Banks and financial institutions are willing to offer various types of loans at attractive rates.
Now, we can also purchase goods on EMI. We do not need to pay the entire amount at one time. It becomes very easy to purchase goods and pay the amount in instalments.
Credit-card, EMI has improved living standards, but it has pressed all of us into debt-trap.
When we purchase goods on EMI, we have to pay interest which results that we pay more than the price of the goods.
The more money we spend on making interest payments, the less the ability to save and invest.
But if we repay our debt then only we can save money and will be able to use it elsewhere. For example, we can invest our money, save for the future, etc.
Create an Emergency Fund
Our life is full of surprises and unexpected events. Sometimes these surprises and unexpected events destroy our lives completely and all our plans become useless.
These surprises and unexpected events occur in everyone’s life. So we all must be prepared for these events in advance and do our planning in the same way.
For this, it is necessary that we, first of all, create emergency funds to deal with these unforeseen events.
If we do not have the emergency money to deal with unforeseen events, we will either have to sell our investments or take loans. Both conditions are not good for us.
But if we have an emergency fund, then it will help us during these situations and we will not have to take a loan to deal with such unforeseen events
It is recommended by experts that we all need to create sufficient emergency funds that can meet our 3 to 6 months of expenses. It takes time to create an emergency fund and unexpected events can happen at any time, so creating an emergency fund should be our topmost priority.
Save and Invest your Money
Merely repayment of loans and creating emergency funds are not enough. You need to develop a habit of saving and investing.
If you want to build wealth then you have to develop the habit of saving and investing at an early age, no matter how small or big the saving is. For this, it is very important to open a bank account, so that it becomes simple and easy to save regularly.
Your savings depend on your age, lifestyle and goals.
Apart from fulfilling your needs and dreams, you also need to save for your retirement, education for your children, travel and entertainment, buying your dream home or car, etc.
If you need money in the coming years, then put your extra money in your savings account. But if you do not need money in the coming decades then it is better to invest them.
Just remember, you work hard to earn money, but when you invest your money, your money starts working for you.
When you start investing your money, it is very important to diversify your portfolio.
Having all your money in one type of investment increases the risk of losing it. If that investment fails, you will lose all your hard-earned money.
Therefore, you should invest in stocks, fixed deposits, mutual funds, recurring deposits, government bonds, etc. to diversify your investments.
DIFFERENCE BETWEEN ASSETS AND LIABILITIES
If you want to learn “How to make your money work for you?” You need to understand the difference between assets and liabilities.
According to Robert Kiyosaki, author of “Rich Dad and Poor Dad”, the concept of assets and liabilities is completely different from what we were taught in school.
According to him, assets are that which puts money in your pocket even when you are not working.
Liabilities are that which takes money out of your pocket.
According to the book “Rich Dad and Poor Dad”, rich people acquire property, the poor only have expenses and the middle class acquires liabilities, thinking it as assets.
HOUSE:- ASSETS OR LIABILITY
House: – Property or Liability
According to the accounting concept, your house is an asset to you. But Robert Kiyosaki did not agree on this. In his book, “Rich Dad Poor Dad”, he explained that your house is not an asset to you, but it is a liability.
If you buy a house you will have to pay for it. Your hard-earned money gets locked into that house, besides, you have to pay various expenses like monthly EMI.
Your house is not receiving any money until and unless you rent it and earns rental income. It is an asset to banks and financial institutions; They receive monthly income from you in the form of EMI.
TYPES OF PEOPLE
There are three types of people
- Middle Class
THE CASH-FLOW PATTERN OF POOR PEOPLE
It is the poor people who have to struggle for money every day. They have to work hard to meet their basic needs.
Despite working so hard, these people are not able to save anything for their future, forget about any investments. Their entire income ends up fulfilling their basic requirements.
THE CASH-FLOW PATTERN OF MIDDLE-CLASS PEOPLE
The standard of living of the middle class is far better than the poor. Their earnings are enough to meet their basic needs.
However, after meeting all their basic needs, they spend their money to buy luxury items. Middle-class people feel rich by purchasing luxury items.
Due to the lack of financial awareness, most of them neither think of any investment nor think of creating an emergency fund for unexpected events.
With the advancement of technology and various advertisements, many of them started saving and investing their money. But their share of investment is very less compared to their earnings.
THE CASH-FLOW PATTERN OF RICH PEOPLE
Rich people are always looking for ways to invest their money. They invest their money to develop multiple sources of income.
By investing their money, they buy assets that either give them regular income or appreciate their investments several times. Most self-made millionaires claim that the secret to their success is that they not only invest their income. They also invest the return they get from their investments.
If you want to make your money work for you, then you have to prepare a budget, create an emergency fund, get out of the debt and invest your money. You don’t need to be an expert. A little amount of money invested in the right instrument can grow into a huge amount in the long run.
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