How to make your money work for you

Right at the start of the pandemic, when we were ordered to stay home, I didn’t have a lot on. My teaching placement was cancelled and we were asked to do a little bit of work each week to maintain my teaching practice, but it was a minuscule amount in comparison to the workload I faced in my first year as a fully qualified teacher.

I spent a lot of that first lockdown playing Animal Crossing, being productive, reviving the ol’ blog, and getting interested in personal finances. For a long time, I’ve been interested in making as much money as possible, but never really did anything about it. For a time, I was working quite prolifically as a freelance writer, making money while working part-time in a library before my teaching year.

That was a great way to make money. It was something that I really enjoyed and didn’t take up too much of my time at all. But to keep this up, I was having to work to make my money. This isn’t necessarily a bad thing: it’s the bread and butter of most full-time jobs. However, as time went on, I watched more Youtube videos on the matter and listened to audiobooks, such as Tim Ferris’ The Four Hour Work Week (here’s a quick affiliate link if you want a copy), and got really into money. This time, however, it wasn’t active money-making; it was passive.

A passive income is all about making money without putting in any real effort. For example, if you read a blog that flogs ads, that blogger will receive a small bit of money every time you see that ad. They have put in the effort to produce a piece of content once, and now make money without doing a single thing. You could earn money while you sleep. It’s the dream, isn’t it?

You don’t have to be a big-shot blogger or content-creator to make money passively. In fact, here are three super simple ways in which your money can work for you.

(Bear in mind, of course, that this is not financial advice. I just find it fun to talk about making money. If you want financial advice, please seek out a qualified advisor.)

ISAs: long-term working

An ISA, or an Individual Savings Account, is tax-free saving and comes in many guises. Cash ISAs. Fixed-rate ISAs. Stocks and shares ISAs. Only you can know which type is right for you, but they will generally have better interest rates than standard current accounts. Ideally, you’d have an ISA that beats the rate of inflation.

Why is this important?

Well, if the rate of inflation is, hypothetically, 10%, then the price of goods and services is going to rise by 10% every year. If the interest rate on your bank account is 1%, then your savings are going to rise by 1% every year. Since your savings aren’t keeping up with the rate of inflation, your money is essentially being devalued by 9%. There won’t be many ways to beat the rate of inflation but, because ISAs generally involve locking your money away for a set amount of time, their interest rates will give you a much better chance at keeping up with it.

I personally have a Help-to-buy ISA, which is great for first-time buyers but unfortunately no longer available. An alternative that I considered, which is still available and has good interest, is the lifetime ISA. This is where the government will match your contributions by 25% so, if you put in the limit of £4000 in one tax year, they’d inject £1000 into your account for free. This can only be used for a first house or retirement, so consider carefully whether it’s the right move for you.

Stocks and shares: longer-term working

The other ISA that I have is a stocks and shares ISA. Personally, I invest in an Index Fund, which I find safer than investing in individual companies because it distributes your money among many. So, if you invest in the S&P 500 – the top 500 businesses in America – your money will be split between the likes of Amazon, Facebook, Google, and lots of others.

This makes it safer than trading stocks with individual companies because, if Amazon were to go bust tonight, my funds would take a huge dip – but they’d be supported by the likes of Google’s continued success. I’m not putting all of my eggs in one basket.

Stocks and shares are fit for longer-term saving because, generally, the market has increased by 10% year-on-year. However, this won’t always be the case: you might one day see a dip akin to the likes of the start of the pandemic, or during the 2008 financial crash, and your savings could crash too. That’s why, if you plan on investing, this should be a long-term process, to ride out any dips in the market and, hopefully, regain any lost capital.

Once again, let me reiterate: this is not financial advice. Do your own, thorough, research before investing or choosing an ISA.

Savings accounts and short-term goals

Let’s face it: COVID decimated the interest rates in our savings accounts. Mine collapsed to 0.01%, which is just…wow. I think most of us were making pennies, if that. Well, it’s time to shop around: compare bank accounts across the web and you might be surprised at what you find.

Alternatively, if you want to stick to the bank you’re currently with, go into the branch and arrange an account review. I’d never had one and left with a credit card, a new bank-type, and two new accounts – all to make my money work more effectively for me.

Remember: all of this interest that you’re making is completely passive: all you have to do is pump the money into the account. I do this by standing order, so I don’t even need to think about it each month. What are your top tips for making your money work for you?

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