Two general steps for increasing your economic wealth
Unless you get lucky(win the lottery, get a large inheritance, etc.), increasing economic wealth takes time and effort. Here are two general steps for most of us that are not that lucky.
Step 1. Save
Depending on your situation this may be easy, hard, very hard, or impossible. Two main factors determine whether and how much money you will have for saving: your total income and your total expenses. If you do not have any money left over to save, then you have to reduce your expenses, increase your income, or both. Try to see if there is any extra time that you could use to bring in more income. There are many articles on the web with suggestions on things that you can do to earn some extra income.
Then take a look at where your money is going. Try to make your spending more efficient so that you are getting the biggest bang for your buck. Find things that you really could either spend less on or not spend at all on with the least impact on your perception of your quality of life. Try your best to make the time you spend on earning money and the amount of money you spend on your expenses as efficient as possible, so that you are maximizing your savings.
Step 2. Grow your savings
After you have gone through the first step and are able to generate savings, the next step is to grow your saving by more than just what you add to it yourself. This means using the money you are saving to earn more money. To put it simply, you give the money to others who earn money on it and give you some of the earnings. These are some of the options you have for earning money with your money in the order of increasing rate of earnings but decreasing rate of safety.
- Give it to the bank in a savings account in return for interest. Very safe, can be taken back whenever you want, but low rate of earnings.
- Give it to the bank in CDs in return for interest. Also very safe, a little bit higher earnings, but can only be taken back after a certain amount of time.
- Loan it to the government by buying government bonds in return for interest. Safe as long as government is business, can only take it back after a certain amount of time.
- Loan it to companies by buying their bonds in return for interest. Safe as long as company is in business, can only take it back after a certain amount of time.
- Buy percentages of public companies to get a piece of their profits and also any increase in their value. Safety depends on how well the company is doing. Can take out any time by selling your percent, but the value can be lower or higher depending on the status of the company. If company totally fails could even loose the whole amount.
- If you have saved a good amount, start your own business. Safety depends on what you do, but the earnings could potentially be very high.
One other thing that you can do is buy things whose value you think will go up in the future. These include real state, gold, collectables, etc.
Overall, you want to try to maximize the rate you earn on your money and minimize the risk of loss. In general, you can spread your savings among these methods based on your individual needs and comfort level.
These are the main general steps you can take to save money and to earn on your savings. There are further details within each that would need to be thought about further. Future posts will delve further into these and will provide more specific and practical suggestions.
What are some of the specific ways that you earn extra income and earn money on your savings? Please leave comments below.
create some intellectual property, collect royalties. I guess that is some form of investment too?
True, I guess royalties could be counted as a type of income or a type of return on investment.