3 ways to invest more money | Smart Change: Personal Finance

(Justin Pope)

Building wealth can be as simple as how much you invest, how long you invest it, and the return on your investment. The S&P 500 average about 10% annual return in the past, so wait long enough, and you’ll probably do quite well.

What you can control is how much you invest. Putting more money to work can accelerate your journey to financial freedom. Here are three ways to increase those contributions; your future self will thank you.

1. Look for Unnecessary Budget Spending

Many people “leak” money from their household and don’t realize it; about one in five people don’t have a budget, making it difficult to know what you’re spending your money on.

Image source: Getty Images.

A survey of 2,500 consumers by West Monroe showed that the average person pays about $273 per month in subscriptions or $3,276 per year. Let’s say you don’t need that magazine subscription or the most expensive phone subscription. If you cut just $25 a month and invest instead, this would grow to $37,242 over 25 years if you received a 10% return on your money.

Now, what if you cut modestly into your lifestyle? Do you need the most expensive upholstery package on your car? Do you have to eat out four nights a week? Of course, you have to make sacrifices, and it can be difficult to build wealth from austerity alone. But it’s an important first step if you’re not sure where to start.

2. Generate passive income

Your career is an exchange system between your employer and yourself. It’s a profession where you give your time and energy to your job, and they give you a salary in return. No one has infinite energy and everyone gets the same 86,400 seconds every day.

That’s where passive income can help you grow your income beyond what you are capable of through your day-to-day activities. Passive income means you earn money without effort. For example, you buy a rental home or dividend shares. The rent or dividends you receive are passive; you receive them because you own the asset, not because you physically did something.

Many retirees want passive income to pay for their living expenses, but you can use passive income to build wealth by reinvesting it. That rental property can eventually buy another one, and you can reinvest dividends to buy more stock — paying their own dividend! Ultimately, you could be getting as much (or more) passive income as your job pays you.

3. Start your business

Last but not least, too many people underestimate the power of an afterthought. You don’t necessarily have to do something overly ambitious to make a huge difference in your finances.

A side job can take many forms; you can sell something for a fee or do something you are good at. Even delivering pizza on the weekend can work. The trick, though, is to keep it separate from your household budget; lifestyle inflation, or ‘Keeping Up With The Joneses’, is a silent wealth killer.

Making $500 a month (or $115 a week) with an afterthought and investing that can yield great results. You have a million dollars if you do this for 28 years and earn 10% on your investments.

That doesn’t sound like much because the bar is set so low in this example. I suspect you would surprise yourself with how much you can earn. Earn and invest $1,000 per month and you will achieve millionaire status in 22 years. As I mentioned at the top of the article, the more you put into it, the faster it hits.

Here’s the bottom line

The best part about this is that you don’t have to choose just one from the menu. You can become very wealthy by monitoring your spending habits, collecting passive income, and getting a side job to fuel your investments. Knowing the information is not enough; you must act upon it. So get out there and dominate your finances.

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