It happens far too often: By the time you've covered your core monthly expenses and spent what you consider a reasonable amount on a few everyday luxuries, you have little money left over to show for all your hard work. But while there's nothing wrong with a lifestyle that includes some instant gratification, it's also important to route at least a portion of your income to helping improve your net worth for the long term.
That means putting some of your money to work -- and it isn't as hard as you may think. Here are three options you should consider.
1. Invest in income-producing assets
Owning assets that produce income is among the simplest ways to let your money work on your behalf -- and it can be as hands-off as you want it to be. The long list of such assets includes (but is not limited to):
Typically, the more risk you're willing to take on in an investment, the greater its potential for earning generous returns. If you invest in a diversified portfolio of stocks or low-cost index funds, for example, it would be reasonable to expect returns of around 7% to 8% annually -- that's the long-term average for the market. But given that it's only an average, it's vital to recognize that there will be years when you don't do that well, or even lose money -- and factor that possibility into your calculations.
On the other hand, the best one-year CD interest rates right now run between 2% and 2.5% a year. That's not much growth -- but CDs are essentially risk free.
Diversifying your investments among a variety of types of income-producing assets can be the best approach. You may decide, for example, to invest 80% of your money in stocks, and the rest in bonds, CDs and high-yield savings accounts. That strategy hedges your bets against short-term losses, but still puts much of your savings into asset classes with better odds of maximizing your profits.
Start with assets you're comfortable with, then learn about different options to expand your investing horizons -- and your potential returns.
2. Increase your skills
Investing in yourself is another great way to generate solid returns on your money. You could:
- Go back to school to earn additional degrees or certifications;
- Take specific classes in subjects that could help you advance your career or grow your net worth -- for example, courses on public speaking, project management, or how to invest.
Whether you're making yourself a more valuable employee and positioning yourself to advance your career, or improving yourself in other ways, the skills you learn will be with you for life, so they can keep paying off for many years to come.
3. Start a business
While the unemployment rate is near historic lows now, it can still be a challenge to find a steady, reliable, good-paying job -- which is one reason why an increasing number of people are concluding they'd rather work for themselves. If you have entrepreneurial dreams, saving some money so that you can pursue them could be the first step toward making a living at doing something you love -- and also toward dramatically increasing your net worth.
You might not need to start with a huge sum of cash. What you definitely will need to have is a detailed business plan that includes a pathway to profitability before you get started. And you likely shouldn't quit your day job until you've tested the waters and made sure you can make a go of it as an entrepreneur. But if you have an idea and a plan, investing money in your own enterprise can be one of the best investments you'll ever make.
Do something smart with your money today
It doesn't take a ton of money to sign up for an online course, buy a few business cards and online ads to launch a small business, or begin investing in a savings account or stocks. But whichever path appeals to you, what's important is to get started on putting at least some of your money to work for you. The sooner you begin, the sooner you'll start building wealth, and seeing the long-term benefits that can bring to your life.