A difficult question that many people on their mission to financial independence quickly encounter is “where they should get their money to work for them”: You’ve managed to cut down a little on your expenses, or to up your income or earnings from a side hustle. But the question as to what to do with the extra money you now have remains. Let’s review some of the avenues on how to “make money with your money” that we have looked at on this mission:
- Paying off debt – saves you money on interest and compounded interested paid over the years.
- Saving – generates money due to interest received and the power of compounding interest over the years.
- Investing – generates money due to capital gains, interest received or dividends.
- Pensions – builds up the income you’ll receive after your retirement age
- Personal capital – increases your earning potential as a professional or entrepreneur.
These are the most common strategies to pursue in order to leverage what your money can do for you.
But where to start? Say you saved $100 this month and that you are happy to invest this money into your future and future earnings, where do you actually put this money? Which of the above options do you choose? And how do you mix these strategies?
If you haven’t yet fully read the previous steps on the above mentioned strategies, I invite you to read those first before continuing reading this step, to better understand all the pros and cons of each strategy. Just come back once you’re done!
The question of where to allocate your money doesn’t have to imply an “either …or…” situation. You can start investing whilst still having a mortgage. You’ll want to save an emergency fund together whilst still paying off credit card debt. And once you start investing in your personal capital, you’ll likely want to keep that up on a fairly regular basis and the fact that you are investing in the market doesn’t rule out this option. Continue reading “Step 85: Plan your Money Allocation Strategy”