Most of us need to work in order to get money. But your money can also work for you. In fact, your money can do most of the work to help you retire comfortably if you save and invest consistently. Here's how to make your assets propel you to a secure retirement.
Start saving. The first step is to save a portion of every paycheck in a savings or investment account. Your money can't begin to work for you unless you set some aside for the future. Putting the money in a retirement account can help it grow even faster without the drag of taxes.
Savings snowball. Once your money starts to generate returns, that amount will be added to your savings and generate its own returns. If you don't spend the income from your investments, the extra cash makes your original ball of savings even bigger. You can also add windfalls such as tax refunds or bonuses to your pot of savings to make it grow even faster. Plus, you can always find ways to make extra money to add to the investments.
Money works nonstop 24/7. As long as you leave the money in the account it will continue to work for you. Equity valuations can be pretty volatile, but the long term trajectory is always up because the global economy as a whole is always growing. In addition, many investments pay out cash regularly in the form of dividends and interest. You get paid even if you don't do any work. As long as you don't raid the accounts, your money will work for you.
You may have to pay fees to manage it. In some cases having money can cost you money. You might need to pay a financial adviser to help you manage it or end up invested in an actively managed mutual fund where a fund manager takes a cut of the profits to help you manage your stash. However, you can always minimize the fees by investing yourself using low cost index funds. Pay careful attention to the expense ratio and other fees associated with each investment you select.
Create a passive income stream. If you save and invest for long enough, your investment returns may be able to replace the income you earn by working. The money you have in an investment account can be used to build passive income. As you make long term investments with your money consistently through the thick or thin, the amount of money you have invested will continue to grow. As you accumulate wealth, you build passive income to a point where work is optional. I've been saving and investing for a couple decades already, allowing me to routinely turn down lucrative work opportunities that cut too much into my family time. The key is to understand how equity markets work and to develop a long term game plan so you don't panic and sell at the next inevitable stock market crash.
Getting money to work better for us is actually relatively easy. Relatively new innovations such as low cost index funds and discount brokerages are making investing more affordable than ever before. It's reducing spending and saving more that is extremely difficult for some people. If you make an effort to manage your own investments and minimize fees you will be able to invest even more efficiently and effectively. Many of us work very hard to earn our paychecks. Saving that money and investing it consistently can make your money generate returns for you.
David Ning is the founder of MoneyNing.com .
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