Before you find out the right option, a person must answer the question of how the money works. Everyone thinks that he has a basic idea of what it is. But, it turns out, there are no two people who would come up with the same definition.
To understand how money actually works, you need to first look at their use. Because capital and investment are so intertwined that they are inseparable.
How to make money work for yourself?
First of all, it is necessary to consider the basic attributes of finance. Firstly, the translation. The main use of money is a medium of exchange. For example, before a farmer had to give a shoemaker a bag of wheat for a new set of shoes. But what if the master did not tolerate gluten? The farmer would have to give a bag of wheat to a butcher who was so desperate that he was ready to give part of the beef before it went bad to take the grain. Etc. This proves that bartering was very inconvenient.
Money is a lot easier. You can take them with you everywhere and buy anything. If you think about it, perhaps this is where the problem of expenses arose: it became too easy to carry money. If you had to lug around 30 pound bags of items for exchange, there would be much less temptation to spend. Is not it?
Storage
Money is also a convenient way to store wealth. Today, the farmer does not need to build a barn to store all the shoes he makes so diligently in order to use them on a rainy day. He can just sell all the shoes, and then stock up on finances that are much more compact than items.
Rating
The third use of money is the appropriation of value to things that a person trades. For example, it is much better to express the price of a pair of shoes at 3,000 rubles than, say, 2.5 bushels of corn or 1/118 of a tractor.
Despite the convenience of money, people rarely use them in their pure form. In fact, if he wants to pay in cash for a new house or car, the authorities will pay him a visit and it will not be a friendly cup of tea. Most of the money a person spends and earns is of a different kind.
One of the biggest differences between wealthy and average citizens is that the former earn interest, while all others pay it. It is important to understand that finance is a tool that can help achieve goals. For a person to achieve true independence, it is necessary that the money work for him, and not he for them. Here are three things you can do to make this happen. They will also help break free of bad financial habits transmitted through the family. If a person can follow them, he will begin to manage his money.
Budget
The most important way to change money handling is planning. When a person makes a budget, he forces his finances to do what he wants. Assigning each ruble to a certain category, it controls where the money goes and what it produces. This will help begin to achieve financial goals.
A budget is the best tool that stands next to income to create wealth. Planning gives you control over your finances and allows you to make favorable decisions at the beginning of each month. When a person has mastered budgeting, he will be able to quickly achieve his goals and avoid debt. A budget is like a fitness tracker, it will help control costs and income.
If a person wants to change his financial picture, planning is the first step to this. Often people create a budget, but can’t stick to it or stop it after a month. You need to create your plan constantly, keep track of your expenses and make changes as necessary, so that you always spend less than earn. When a person makes decisions about how he will spend his money at the beginning of the month, he can decide what priorities are most important and begin to make progress in achieving goals.
Get out of debt
Does each person know how much money he pays in percent every month? How much of the monthly budget do student loans, car payments, and credit card bills eat? If a person could take all this money and send it to a savings account, it is simply amazing how quickly he could save up for rest and other things he wants. Debt often becomes a burden and limits the choices that can be made. One of the best things to do with money is to get out of debt and stay away from it.
Credit limits all other options. Think about what you can do with the extra money that comes out every month if there were no debts. A person can also start his own business or quit a job that he hates if there were no debts. Take your time today to start getting out of loans.
If a person has a lot of debt, this may seem like a problem that is too big to solve. Nevertheless, he can start by simply repaying his smaller loans, and then work on solving the larger ones with the help of the extra money that has appeared. When a person repays more loans, and then applies these funds to the next debt, he will begin to gain momentum and will be surprised at how quickly he can pay off his debts. After that, it’s easier to see that money works for a person.
Save and invest
After freeing all this extra money from paying off your debt, you need to start aggressively saving. There will be a moment when finances will earn more than a person in a month. And it is precisely this time that will become favorable; it is necessary to invest money so that they work.
Of course, this requires considerable expenses and, in order for there to be progress, you need to save a large amount every month. After making money, a person should have a reserve fund for six months. And it is at this point that you will need to start investing. That is how you can grow your wealth most efficiently. In addition, saving money will help you be prepared to cope with the ups and downs that will occur throughout life.
Savings on an emergency fund may be the first step, but a person will begin to create wealth when he invests. Think not only about savings on purpose and find a good financial planner that will help you save money and invest money so that they create their own kind. Take the time to really start saving today.
When a person starts investing, it is important to diversify your portfolio. You do not need to invest all the money in only one type of stock. Many people consider real estate a good investment option, because it will generate a monthly income after they have paid for it.
Setting
And it will also be useful to have a specific set of goals for which a person saves and invests, as this will help to focus your expenses and give motivation. Think about things to pay for, such as educating a child, buying a house, or paying utility bills. These goals can also determine what types of investments to choose.
Practice
“Your money works for you if you force it.” This is such a general personal finance tip that borders on the cliché. But what does this really mean how money works? And more importantly, how can this be done? There is no simple answer or only way. In fact, almost everyone can find at least one option for the money to work themselves.
But, first of all, you can open a highly profitable savings account. Sean Gould, a wealth strategist at Waddell and Associates and a certified financial planner, explains that, of course, your money should work, but before that you need an emergency supply for six months of living expenses.
A reasonable place to keep it is the insured FDIC or savings account, where it can generate more profit over time.
Develop passive income streams
This is a term that is used colloquially to define any money earned without much effort.
After a person sets it up, flows will earn money while he sleeps. Sounds too good to be true, right? But do not be afraid - this is not a quick enrichment scheme. Creating any passive income streams requires upfront investment, be it time or money, but can lead to huge payouts later.
Common forms of passive income include real estate investments or quiet business partnerships, but they can also be obtained by, for example, creating YouTube videos or using affiliate marketing on a blog.
Extra bonuses
It is worth doing your research and getting the most out of your credit or debit card. You must select a reward account that will really be used. Credit cards that match your lifestyle (for example, miles offered by airlines are not suitable for people who are not interested in traveling), means that every ruble to be spent does double work.
But it is worth paying attention that if there is debt, this strategy is not suitable. The key to making money work with cards is the ability to fully pay the bill every month.