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How to Make Your Money Work Harder for You

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How to Make Your Money Work Harder for You

April 28th, 2020 – Let’s face it, the current economic climate can feel a little unsettling. Uncertainty about the future, coupled with rising costs, can make it seem like your money is simply disappearing. But it doesn’t have to be this way. You can take control and make your money work harder for you, building a more secure and prosperous financial future.

This guide provides a starting point for those looking to actively manage their finances and accelerate their wealth-building efforts. It’s broken down into manageable steps, suitable for beginners and those looking to refine their approach.

1. Start with a Solid Budget:

Before you can invest or save effectively, you need to know where your money is going. A budget isn't about restriction; it’s about conscious spending.

  • Track Your Expenses: Use a budgeting app (Mint, YNAB, PocketGuard), a spreadsheet, or even a notebook to track every dollar.
  • Categorize Your Spending: Identify your needs (housing, food, transportation) versus your wants (streaming services, dining out).
  • Set Realistic Goals: Determine how much you can realistically save and invest each month.

2. Maximize Your Savings Accounts:

While savings accounts don’t offer high returns, they're crucial for an emergency fund and a safe place to start.

  • High-Yield Savings Accounts: Shop around for banks offering competitive interest rates. Even a small difference in the interest rate can add up significantly over time. Online banks often offer better rates than traditional brick-and-mortar institutions.
  • Automate Your Savings: Set up automatic transfers from your checking account to your savings account each month. “Pay yourself first” – make saving a priority.

3. Understanding the Basics of Investing:

Investing is the key to long-term wealth creation. However, it can seem daunting. Here's a quick overview:

  • Start Small: You do not need a fortune to start investing. Many brokers allow you to invest with as little as $1.
  • Index Funds and ETFs: These are a great option for beginners as they offer diversification (spreading your investment across multiple assets) and low fees. They track a specific market index (like the S&P 500).
  • Consider a Robo-Advisor: If you’re not comfortable managing your investments yourself, a robo-advisor (like Betterment or Wealthfront) can automatically manage your portfolio for you based on your risk tolerance.
  • Long-Term Perspective: Investing is a marathon, not a sprint. Don’t panic sell during market downturns. Stay focused on your long-term goals.

4. Long-Term Financial Planning:

  • Retirement Accounts: Take advantage of employer-sponsored plans (401(k)) and individual retirement accounts (IRAs). The tax benefits can be significant.
  • Set Financial Goals: Define your financial goals – a down payment on a house, your children’s education, or simply a comfortable retirement.
  • Regularly Review Your Plan: Your financial situation will change over time. Revisit your plan at least once a year to make sure it's still aligned with your goals.

Resources to Explore: