Imagine spending days with your family, just hanging out, doing things together, without having the pressure of waking up early and going to work every single day. All of us dream of having passive income, being financially secure, and being free!
How to make your money work for you is the question we all ask ourselves.
And the answer isn’t what we want to hear.
To make money work for us, we need to put in the work first. Creating a passive income stream requires not only time and discipline but also knowledge.
In this article, we’ll talk about savings and investments and show you how to make your money work for you!
At the end of the blog, we’ll invite you to pay yourself first, master savings, and take your first step in utilizing money and making it work for you!
Understanding the Concept
When we say to make your money work for you, what do we actually mean by that?
To have money work for you means leveraging your financial resources, such as savings, investments, and income streams, in a strategic and proactive manner to generate passive income, maximize returns, and achieve long-term financial goals.
Instead of solely relying on active income, you prioritize creating opportunities where your money generates additional wealth and financial growth without requiring constant effort or active involvement on your part.
There’s No Slowing Down
This does not mean that you can just kick back and relax and see the money roll in. It boils down to learning how finances work, opting for a strategy that has the opportunity for passive income, and actively working to achieve your goals.
To earn more money outside your job, you’ll still need to work, learn, and commit, but the tools and resources you focus on will eventually allow you to become financially free. Even with financial stability and freedom, you’ll need to actively work and maintain the system in place.
Assets and Liabilities
First things first—understanding the difference between assets and liabilities is critical! After that, you’ll have to take a look at your life, find assets and liabilities, and know where you currently stand.
In short—assets earn you money, and liabilities take away your money. This concept isn’t new, but it is perhaps best described in Robert Kiyosaki’s Rich Dad Poor Dad.
We’ve also talked about this earlier in our journey:
Building a Solid Financial Foundation with Savings
Now that you know that you need to increase the number of assets you own and reduce the number of liabilities, let’s get down to the concrete steps that you can take to lay the financial foundation.
While investing in real estate or the stock market allows you to build wealth, you need to first understand your financial situation and find good and bad practices. You don’t need financial advisors to do it, and it is something everyone can start with—yet so many people skip this step.
Track everything to see where you spend your money, and then try to come up with a budget that you will stick to.
Creating a Budget
Setting a budget means allocating the money to a spending category. This will help you live below your means and not get further into debt. Spending less than you earn is the first step towards achieving your financial goals because, as you save more and more money, you’ll be able to invest it and create passive income streams over time.
Creating The Emergency Fund
Another big benefit of having extra money in your bank account is the emergency fund! Life’s not always going as planned, but you will only use an emergency fund for emergencies such as:
- Medical expenses and unexpected medical bills
- Unexpected home repairs that are a must-do
- Loss of a loved family member
There aren’t rules to what you use your fund for, but it cannot be for every single thing that happens or discomfort. Before you dip into your savings, try to find some other solutions first. With the challenge we’ve created, you will be able to create an emergency fund easily, but there’s more to the challenge, so keep on reading.
Paying Off Your Debt
To make your money work for you, there’s one thing that you need to get off your shoulders—and that is to pay all your debts.
Once you start tracking your finances and setting your budget, you will know how much debt you have and what the interest rates are. Before you start saving, investing, or taking any other action, paying your debt is the first thing that you need to check from your list.
If you don’t apply some financing strategies, the debt can grow and haunt you. You will lose focus and lose more money in the process. Remember that this is a long-term strategy for improving your personal finances, and if you skip any steps, you will never reach the point where the money will work for you.
Snowball and Avalanche Method for Debt Repayment
Having debt means that you need to take one extra step, and you can use this experience to work on your bad financial habits, learn how to earn money, and be disciplined. There are multiple methods for paying debt, and one of them we mention in detail in our challenge:
With the snowball method, you start paying your smallest debt first and move on to bigger ones (we exclude mortgages here and focus only on credit cards, loans, etc.). As you pay off smaller debts, you’ll have more money to save to pay off larger debts.
On the other hand, with the avalanche method, you pay your high-interest debt first and go smaller. Starting with the larger ones will create an avalanche that will be hard to stop.
No matter which method you choose, if you’re only making the minimum payment, you won’t see any improvements. Keep the interest rates in mind, don’t rely on credit card rewards as the main source of recapturing money (we’ll talk about the system we use later in the article).
Investing Is Key To Passive Income
Investing is a big part of the process if you want to make your money work for you, and this is usually what people refer to as their idea of passing income and building wealth. There’s a lot of things you can invest in – stocks, bonds, mutual funds, index funds, real estate, etc.
Some of the investments carry more risk, but earn rewards or pay dividends, while others are less risky but offer a guaranteed return (nothing is 100% guaranteed!). A lot of people consider to start investing in a rental property that would bring them steady monthly income, which is a great asset to have.
Investing is a great way to make some extra income, but if you’re not careful and don’t exactly know what you’re doing, you can create new debt and end up worse-off.
For first time investors, it is easy to never put all your money in one basket and build up your portfolio with safer investments. There are a lot of investing videos, blogs, courses, and materials online, which is why we’ll mention something that’s not as widespread—investing in a whole-life insurance policy.
Whole-Life Insurance as an Investment?
To maintain the policy, you need to make premium payments and improve the cash value with each payment. The life insurance policy plays multiple roles – it is used as your savings account but also as collateral when you take personal loans from your insurance company.
The reason you are not spending the money out of the cash value is to maintain uninterrupted growth. Over time, the cash value of your policy will increase as you continue to make premium payments and use the money from loans to cover your expenses and invest.
Pay Yourself First
For this system to work, you need to pay yourself first. No matter what it is—a bank, online banks, or insurance companies—a financial institution will charge you interest. Interest payments can eat out one’s income, which is why it is important to pay yourself first, but you need to pay off the loan and become eligible for another one.
With the loan repaid, you’re in a much better situation than before because the money accumulated, your cash value increased, you recaptured interest, and you used the money for your expenses and investments. The next loan can be bigger, which means that you can take your personal finances to the next level.
High Yield Savings Account, Checking Account, Retirement Accounts
The lifestyle banking system may be easy to understand, but applying it daily to your life is what makes it hard. To make the system work from a technical standpoint (and this is where people get confused), you’ll need several accounts:
Policy Loan Account
To implement the lifestyle banking strategy, you would need a policy loan account associated with your whole life insurance policy. This account allows you to borrow against the cash value of your policy. The idea is to use policy loans instead of traditional bank loans, allowing you to access funds while the cash value continues to grow.
Personal Banking Account
You would also need a personal banking account, often referred to as a “banking” or “cash flow” account. This account acts as a central hub for your financial transactions. You deposit income into this account, pay expenses, and manage cash flow. It’s where you repay policy loans and replenish the cash value.
You can separate this into a high yield savings account and a checking account. With savings accounts, you will make sure that you’re not spending the money you pay yourself back during the process. In addition Most savings accounts offer a small amount of interest, letting you rack up earnings
Additional Investment Accounts
These accounts would include brokerage accounts, retirement accounts (e.g., Roth IRA, 401(k)s), or other investments.
Patience and Mindset
It takes time to make your money work for you. You can’t see results overnight, and this is one of the biggest mistakes people make. Just because you invest in the stock market once doesn’t mean that you’ll earn money every time.
This is the process by which you might be losing money but learn from your mistakes. If you have a local business that you want to raise to the next level or you are looking for ways to increase your rental income, you may need to do this through trial and error.
With a certified financial planner, you can take the right steps at the right time, but even with top-quality experts by your side and the wrong perceptions and expectations, you’re likely to fail.
That’s why you need to arm yourself with patience and trust the system but at the same time take the right mindset and understand that it takes years of work before you get to the point where you have money rolling in.