By Angela Dorsey
Money is a valuable resource that can help us achieve our financial goals and live the life we want. But simply earning money isn’t enough—our money should also be working for us. At Dorsey Wealth Management, our mission is to help women retire to a life they love through wise money management. Here are the top 10 tips we’ve found for making your money work for you, not the other way around.
1. Set Financial Goals
The first step is to set clear financial goals; after all, you can’t make your money work for you if you don’t know where you want to go! Make sure your goals are specific, measurable, and realistic. Common financial goals include saving for a down payment on a house, paying off debt, building up an emergency fund, and achieving your ideal retirement lifestyle. Once you have a clear goal in mind, you can create a plan and get in the right financial mindset to get there and manage your money in ways that will work toward your ultimate goal.
2. Create (and Stick to) a Budget
Next, you’ll want to create and stick to a budget. If identifying your goals and outlining a plan is the map, the budget is the actual route you take to get to your end goal. Budgeting often has a negative stigma associated with it. There’s a persistent belief that only people who are barely getting by need to budget, but this is so far from the truth. Those who consistently budget often make better decisions with their money and achieve their financial goals faster.
To create a budget, you must understand your income and expenses and allocate your money in ways that align with your financial goals. The first step is identifying areas where you may be overspending, allowing you to redirect those funds toward savings or investments.
3. Avoid or Pay Off High-Interest Debt
Put simply, revolving high-interest debt is the archenemy of making your money work for you. It is the villain in your fairy tale story, and it should be avoided as much as possible. If you have high-interest debt, such as credit card debt, paying it off should be your top priority. If left to accumulate, it can be incredibly challenging to make progress toward your financial goals. Consider consolidating your debt or using the snowball or avalanche method to pay it off systematically.
4. Automate Your Finances
Automating your finances can be a powerful tool for making your money work for you. Setting up automatic transfers from your checking account to your savings or retirement accounts allows you to consistently save and invest without even having to think about it. You can also automate bills to ensure you never miss a payment and avoid late fees. Automating your finances not only saves you time and effort but also helps you stay on track toward your financial goals. Just be sure to monitor your accounts regularly to keep everything running smoothly.
5. Utilize a Rewards Card & Pay it Off Each Month
This tip can be a great way to make your money work for you, but it should be used with caution and not as a way to live beyond your means. Many credit cards offer cash back, points, or miles for every dollar you spend, which can add up to significant rewards over time. Using these cards for everyday expenses you have to pay regardless can be a powerful way to make your money stretch further.
It’s crucial to use this strategy responsibly and pay off the balance in full each month to avoid interest charges and debt. By paying off your balance each month, you can enjoy the benefits of a rewards credit card without incurring any additional costs. Compare different cards and their rewards programs to find one that fits your spending habits and financial goals.
6. Open a High-Yield Savings Account
One of the easiest ways to make your money work for you is by putting it into a high-yield savings account. These accounts offer competitive interest rates and allow you to earn more on your liquid cash assets (like an emergency fund) without subjecting them to the volatility of the stock market. Start by comparing different banks and their interest rates, fees, and other features to find a high-yield savings account that suits your needs. While the interest earned on a savings account may not be as high as other investment options, it provides a low-risk way to earn passive income on your savings.
7. Take Advantage of Employer Matching Contributions
If your employer offers a retirement savings plan, such as a 401(k) or 403(b), don’t neglect to take advantage of any matching contributions. Employer matching contributions are essentially free money that can significantly boost your retirement savings. For example, your employer may offer a 50% match on the first 6% you contribute. If you earn $75,000 and contribute the full 6%, your employer will contribute an additional $2,250 to your retirement account. That’s an extra $2,250 toward your retirement that you didn’t have to earn or invest on your own! Be sure to contribute enough to your retirement account to maximize any employer-matching contributions, as it can make a big difference in the long run.
8. Invest in Low-Cost Index Funds
Investing in low-cost index funds can be an effective way to grow your wealth. Index funds are a type of mutual fund or exchange-traded fund (ETF) that track a specific market index, such as the S&P 500. By investing in an index fund, you can gain exposure to a diversified portfolio of stocks or other assets with low fees and expenses compared to actively managed funds.
Over time, index funds have historically outperformed most actively managed funds due to their low fees and ability to match the performance of the overall market. As with all investing, it’s critical to do your research and choose index funds with low expense ratios and fees, and consider diversifying your portfolio across different asset classes and market sectors to mitigate risk. Also, be sure to consolidate your investments where possible.
9. Invest in Real Estate
Investing in real estate is another way to make your money work for you. Real estate investing can take many forms, such as buying and renting out a property, flipping houses, buying an Airbnb or investing in real estate investment trusts (REITs). Here in the Southbay, just owning a home is a good investment. Real estate can provide a passive way to grow your wealth through rental income or appreciation in value over time. It can also provide diversification to your portfolio by adding an asset class that is not highly correlated with the stock market.
However, real estate investing can be complex and requires careful research and analysis. You must understand the local real estate market, the costs and risks involved, and have a solid investment strategy before taking on real estate, so this tip won’t work for everyone. Consider working with a financial advisor or real estate professional to help you make informed decisions.
10. Invest in Yourself
Lastly, consider investing in yourself as a way to make your money work for you. Whether it’s learning a new skill, taking a course, or pursuing further education, investing in yourself can improve your earning potential and help you achieve your financial goals. By continuously developing your skills and knowledge, you can become more valuable to employers or clients, increase your income, and build a stronger financial foundation for yourself.
Additionally, investing in your health and well-being through exercise or nutrition can lead to long-term savings on healthcare costs and improve your overall quality of life. Be sure to prioritize investing in yourself as part of your overall financial plan.
Ready to Make Your Money Work for You?
Making your money work for you can seem like a daunting task, but with the right approach and mindset, it can be broken down into easier-to-accomplish steps. Remember that building wealth takes time and effort, but with patience and discipline, you can create a stable financial future for yourself and your loved ones. So start taking action today, and make your money work for you! Schedule a free introductory 30-minute phone call or reach us at (310) 370-7776 or firstname.lastname@example.org.
Angela Dorsey is the founder and financial advisor at Dorsey Wealth Management, a fee-only financial planning firm helping women prepare for retirement. Angela earned a BS in computer science from Loyola Marymount University, an MBA from UCLA Anderson School of Management, and spent 20 years as a Senior Compensation Specialist in large corporations before becoming a CERTIFIED FINANCIAL PLANNER™ professional and a Registered Investment Advisor (RIA). That background gave her the tools to couple with her passion for empowering women to make the best financial decisions possible. Angela lives in Torrance, California, with her husband. She enjoys spending time at the beach or surrounded by nature. To learn more about Angela, connect with her on LinkedIn.