5 Ways to Make Your Money Work for You

If you work 40 hours per week for 50 weeks a year, you're toiling for 2,000 hours per year. That's 120,000 minutes of labor, and you're probably not even earning as much as you'd like to earn or think you should earn. One way to enjoy more income -- now and/or later -- is to put some of your money to work for you.

Just imagine it -- while you're toiling for, say, eight hours a day on weekdays, your dollars can be working for you 24/7 -- all the time, nonstop. Here are five ways to make your money work for you.

Image source: Getty Images.

1. Pay off debts

It might not seem like spending money paying off your debts is a way to make money, but it is. Because each dollar of debt that you pay off today will prevent you from having to pay interest on it going forward. Here's an extreme, large-scale example: If you borrow $200,000 to buy a home with a 30-year, 4% fixed-rate mortgage, you'll pay about $955 per month in interest and principal, paying a total of $343,800 over the 30 years. A whopping $143,739 of that, fully 42%, will be interest payments. If you could pay off the whole loan in the first months, you'd avoid having to pay more than $140,000. You'd keep much more of your money.

Of course, few of us can pay off our home loans all at once when we owe vast sums, and when your interest rate is low, as mortgage rates currently are, home loans are not very problematic. But still -- the principle is true for smaller debts. If you owe, say, $10,000 on credit cards, and you're paying 20% interest on that, you're forking over around $2,000 in interest annually. Pay that debt off this year, and you can save thousands in interest. Getting out of debt isn't always easy, but it can be done. And it should be done, at least in the case of high-interest rate debt, before you tackle investing.

2. Stocks

Next is a more obvious way to make your money work for you: Invest in stocks. If you choose solid long-term growers, their stock prices should appreciate over time, gaining value for you. According to the research of University of Pennsylvania professor Jeremy Siegel, the U.S. stock market posted an average annual return of 9.6% between 1926 and 2012, topping the performance of bonds and gold. His research also found stocks outperforming bonds in 96% of all 20-year holding periods between 1871 and 2012, and in 99% of all 30-year holding periods.

Of course, you're not guaranteed a 9.6% average growth rate during your investment period; you'll probably average less -- or more. The table below shows how annual investments of $10,000 could grow at several different rates:

Calculations by author.

You don't have to spend many hours or years studying up to become a great selector of the best stocks in order to profit from the stock market. You can just invest money regularly in one or more low-fee, broad-market index funds such as one that tracks the S&P 500 index. The SPDR S&P 500 ETF (SPY +0.34%) is a fine example.

Image source: Getty Images.

3. Dividend-paying stocks

Dividend-paying stocks can be even more appealing than nonpayers, as they offer a one-two punch: both stock price appreciation and dividend income -- and keep in mind that healthy and growing companies tend to increase their dividend payouts over time, too.

Spread $100,000 across a bunch of dividend payers with an average overall yield of 4%, and you'll be looking at annual income of around $4,000. Each of those invested dollars will be sending you $0.04 every year, and over time that's likely to become $0.05, $0.07, $0.10, and more. Years down the road, you may well be collecting $10,000 annually from your initial $100,000 investment -- and those shares will likely have grown in value, too, if they were in solid businesses.

Here are some examples of familiar companies and their recent yields:

Source: Yahoo! Financial.

4. Look into annuities

Here's a powerful way to have your dollars work for you: You can use them to buy an immediate fixed annuity (or a deferred one) that will pay you a set sum every month -- for a fixed period or even for the rest of your life. That can go a long way to providing peace of mind and financial security late in life.

Read up on why you might want annuities before taking any action, but get an idea of what's possible in the table below, which shows what some people might receive in immediate fixed annuity income in the current interest rate environment:

Source: immediateannuities.com.

5. Make the most of credit cards

Finally, your money can work for you when you simply make ordinary purchases -- if you're using credit cards that offer rewards or cash back. There are lots of great cash-back credit cards that offer up to 5% or 6% back on certain purchases at certain retailers, and some cash-back cards will pay you as much as 2% back on just about all purchases.

Spend $300 per month at a certain retailer or at supermarkets? You may be able to get between $180 and $216 back in cash -- without your exerting yourself at all, other than extending your credit card to a cashier.

There are lots of ways to make your money work for you. Look into these and others, and you may enjoy greater income now or in the future, with some help from your money.