Money Working for You

Most of us put in hundreds of hours of work each year to earn most of our money. 

But when you have savings and stash your funds in the right places, your money starts to work for you. Over time, you’ll need to work less and less as your money works more, and eventually, you might be able to stop working altogether. What does it mean to have your money working for you?

 When you’re first starting to save, you’ll want to put your money somewhere safe, where you can access it right away for unforeseen expenses. That means an online savings account, where you might earn 1% interest annually and not even keep up with inflation, which tends to run around 1% to 2% per year.

1- You’ll even have to pay taxes on your meager 1% earnings.

2 -Anything is better than earning 0%, though, or not having savings and going into credit card debt, which will cost you 10% to 30% in interest per year.

3- Consumer Financial Protection Bureau. "The Consumer Credit Card Market," Once you’ve saved three to six months’ worth of expenses in your emergency fund, you can start saving money in a tax-advantaged retirement account. That’s where the magic starts to happen. These accounts, such as a Roth IRA or 401(k), allow you to invest in the stock market. 

You won’t pay any taxes on those investment gains along the way, which will help your money grow even faster. With a Roth IRA, you contribute after-tax dollars, and everything that’s in the account after that is yours to keep. With a 401(k), you get to contribute before-tax dollars, giving you more money to invest upfront; you’ll pay taxes when you withdraw the money in retirement. 

(If you’re not sure whether it’s better to pay taxes now or later, you can hedge your bets and contribute to both your employer-sponsored retirement plan and a Roth IRA.)

4- The third choice, a traditional IRA, allows you to contribute before-tax dollars as you do with a 401(k).

5- If you have a high income and low expenses, you might accumulate enough to retire in 10 years. 

For most people, it takes closer to 40 years. But at some point, if you save and invest regularly, you should be able to live off the income generated by your investments—the saved money that’s working for you. 

The earlier you start, the more time a smallmustt of money must grow large through the miracle of compounding.

The Bottom Line

Saving money is incredibly important. It gives you peace of mind, expands your options for decisions that have a major effect on your quality of life, and eventually gives you the option to retire. Most people who are wealthy got there through a combination of their own arduous work and smart savings and investment decisions. 

You can become one of those people, too.