Personal Finance 102–Making Money Work For You
Another way to generate cash inflow is to make money work for us instead of us working for money. Unlike us, money can work 24/7/365 with no lunch breaks, or sick days. The cash generated from “monies” hard work can be used to help pay for future financial goals.
The most common places to put money to work includes either purchasing or owning; paper assets (stock market), real estate (personal and rental property), and businesses (start up and small business). Choosing the right place to put money to work requires an understanding of the goal to be accomplished. It also requires matching knowledge and risk to selecting the most appropriate ownership or purchase.
Paper assets come in all shapes and sizes. Examples of paper assets include; stocks, bonds, mutual funds, deposits, saving certificate, and insurance policies. This topic will be further investigated in Courses 7, 8, 9, and 10.
As mentioned earlier the act of saving money is to not to spend it. Money saved can be put to work in savings accounts to pay for short term goals, or investing in assets to pay for long term goals.
Most financial institutions have savings accounts that are safe, and a good place to start putting money to work. The money earned in a savings account is called interest, and the rate at which money earns is called the interest rate. The interest rate is often given as an annual rate.
To determine how much interest our money will be earning we need to understand whether it is earning simple interest or compound interest. Simple interest is money that is paid on the original amount of money in the savings account. Compound interest is money that is paid on not only the original money in the savings account, but the interest it earns as well.