The wealthiest people in society don’t just make money, they earn money and invest it again to return even more down the line. Get-rich-quick schemes are usually a hoax and understanding how money is used to generate wealth is a much better way to go about building your financial stability.
The obvious first step for anyone wanting to build wealth is to earn as much as possible, but what you do with those earnings is as important as earning it in the first place. In this short guide, we’ll give a basic rundown of how the money you earn in your day job, receive from inheritance or another source can be used to make you more money and build your wealth over time.
Saving
There are basically two broad ways that money earned can be used to generate yourself more money: saving and investing. We’ll start with saving. This is the lower risk but lower return strategy which may suit your situation more.
Cash Savings and ISAs
When most people think about saving they consider cash savings accounts and ISAs. These are essentially digital storage vaults for your cash savings which will benefit from a minimal interest rate – that is how much money you earn for keeping cash savings in a particular account.
Some accounts will offer unlimited access and withdrawals, others will limit access and withdrawals. Even with heightened interest rates as of the end of 2022, the interest paid on these accounts isn’t going to generate you much in the way of returns anytime soon.
Bonds
Bonds are a more appealing option for anyone with a large lump sum of cash that they don’t need in the short to medium term. These agreements basically lock away your money for a set period and pay you a guaranteed rate of interest over that period – typically between 1-5% in recent times. For example, that means if you have £1 million to put into savings bonds for 1 year at an interest rate of 4%, you won’t be able to withdraw in that year but in the end, you’ll earn £40,000 for doing so.
Investing
The more attractive but risky option for using your money to earn more is investing. This can be done through a variety of channels, each with its own pros and cons.
Stocks and Shares
Investing in the stock market is a popular option that many people talk about these days. It’s become very accessible and thus popular with all generations, but it’s a dangerous environment if you don’t know what you’re doing.
You can buy stocks and shares directly or essentially bet on market trends in index funds like the S&P 500 – you could see the value of your investments go up, but your capital is in danger if markets fall or collapse. Investing in stocks and shares should be a long-term strategy for anyone who is not keen on doing day trading and other short-form executions.
Business and Entrepreneurship
You can of course invest your own money in business or your entrepreneurial activities. If you can invest money into your startup and create sustainable growth and income then you can potentially make endless returns on your initial investment. Consider any business ideas you have or start a side hustle and see where it takes you.
Income Generating Assets
The “Holy Grail” of earning money from your own money is using it to buy income-generating assets. Investing in stocks or your own business is somewhat doing this, but purchasing income-generating assets is anything that will deliver you a monthly or regular income.
The most popular one is property – which you can rent out to establish a new income stream. These assets are widely considered to be the key to financial independence and freedom because they allow you to earn money passively. However, they are difficult to achieve if you don’t have much cash available, but you can plan and set a course for buying your own income-generating assets down the line.
