How to compose your income in 2022
It was the year of the secondary turmoil, and if you want to learn more about the power of multiple sources of income, you won’t have to look far to find one. But, if working more is not an option, or if a side activity is just not in the cards, you can increase the income you are already receiving and increase what you have in 2022 without getting a raise or putting just one extra hour of work. Here’s how.
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Compound growth: when interest accumulates interest
If you want to increase your income without working more hours, then you have to put your money to work – and positioning your money to make more money is the whole concept behind compound growth.
âWhat is compound growth? It’s the idea that when your money grows, the new money you’ve earned will also grow if you keep it invested, âsaid Kaitlyn Maloney, senior content strategist at Plynk Invest. âFor example, if you started with $ 20 and invested $ 20 per month – assuming a hypothetical 7% annual return – in 10 years you would have $ 3,422 and in 20 years you would have $ 10,338.
âOf course, an annual growth of 7% is a hypothetical example, because every year in the market is different. Some years it is higher and others lower. But, if you can keep your money invested for the long haul, it could pay off through compound growth. “
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Invest in a CD for low risk gains
The surest way to increase your income is to spend some of it on the pursuit of compound interest – and while no investment is guaranteed, a CD is about as safe a bet as you will find. .
âInvest in a high interest certificate of deposit (CD) that receives daily compound interest,â said Adrienne Taylor-Wells, AFC and founder of Tailored WealthSaver. “Currently, Navy Federal offers a 3% 12-month CD, which you can earn up to $ 90 for the year by simply setting $ 3,000 aside for 12 months.”
However, all but the most conservative investors will be aiming for more than double-digit gains on an investment of three thousand dollars for the year.
But with the potential for greater reward always comes greater risk.
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Invest in large companies that distribute dividends
If you’re a newbie who doesn’t know much about investing except that $ 90 won’t be enough, you’ll be happy to know that the stock market is the greatest wealth-generating machine in history. But investing in stocks comes with risks that you don’t have to worry about when putting your money in a CD. You may be able to mitigate this risk by investing only in companies that can generate gains when the market is up and play defense when the market is down.
âOne of the easiest ways to do this is to buy low volatility stocks and earn dividends on them,â said Ahren Tiller, founder and supervising lawyer of the Bankruptcy Law Center.
Large, well-established U.S. companies that pay dividends – especially those that steadily increase their dividends – tend to outperform the larger market, according to Kiplinger.
âInvesting in companies like Berkshire Hathaway, Apple, Disney and other reputable brands offers low risk while ensuring growth for your money,â Tiller said.
Learn more about dividends: what are they and why are they important for your investment strategy?
Spread your eggs by investing in funds
Tiller mentioned Berkshire Hathaway, which is led by Warren Buffett, the most successful investor in history. But Buffett himself would likely advise against investing in Berkshire Hathaway – or any individual stock, for that matter – because it is always risky to place all of your money on a single bet. Instead, Buffett has long advocated index funds, which are cheap, easy to buy and sell, and offer instantly diversified portfolios that consistently outperform professionally managed funds.
âInvest in index funds with low maintenance fees either in a brokerage account, your employer-sponsored retirement account or an IRA,â Taylor-Wells said. “Index funds that match the performance of important indices like the SPY, which roughly matches and mirrors the S&P 500, offer lower investment costs.”
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Invest in real estate (you don’t have to buy)
Some of the greatest fortunes the world has ever seen have come from wise investments in real estate, but buying that first investment property is beyond the reach of most people. The good news is, you don’t have to.
âAs much as I love rental properties as a passive income stream, there are so many other ways you can earn passive income streams from real estate,â said G. Brian Davis, Real Estate Investor and Founder of SparkRental.com . âFrom real estate crowdfunding platforms and peer-to-peer lending, vacation rental arbitrage and a dozen other strategies, you can create many diverse passive income streams. Many don’t need a lot of money either, unlike buying rental property. For example, some real estate crowdfunding platforms allow you to invest with as little as $ 10. “
Discover: 8 insider tips to get rich in real estate
Don’t wait for 2022 – or for nothing
No matter which route you choose, remember that the most powerful tool you have isn’t money. It’s about time – and a little patience never hurts either.
âWhen it comes to compounding your income, the best thing to do is to start ASAP,â said Melanie Hanson, editor-in-chief of EDI Refinance. âIf you start saving money and earning interest earlier, it will take longer to compose itself and thus provide you with a larger sum. However, once you get started, leave it alone. It can be difficult to watch your money grow over time, but it is imperative to remember that as your money earns more it will earn more. You’re not going to get rich overnight – these things take time. Have patience and go through with it.
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This article originally appeared on GOBankingRates.com: How to Compose Your Income in 2022