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Building Wealth: How to Make Money Work for You

Successful personal finance management stretches beyond repaying debt.

Justin Cupler

Contributing Writer at Tally

September 30, 2021

Good personal finance habits don't begin and end with debt repayment. Yes, debt repayment is a huge financial goal, but it's far from the only one.

After paying off your debt, it's a great time to build wealth and make your money work for you. Whether it's through savvy investments, steady interest earnings or strategic credit card use, there are many ways you can use your money to earn more money.

Below we'll cover how to make money work for you, so you can further extend your personal finance success.  

How to make money work for you

Once you've become debt-free, it's time to make your money work for you for a change. Let's dive into some key ways to put those dollar bills to work. 

Build an emergency fund that pays you

Building a three- to six-month emergency fund is a critical step in financial independence and a great initial goal after paying off your debt. When you're looking to make your money work for you, it's more than just saving — it's earning interest, too. 

Instead of socking that emergency fund in a lockbox or a low-interest-rate checking account, consider placing it in a high-yield savings account. According to Bankrate, these high-interest bank accounts pay upward of 0.6%, as of September 2021. Sure, that might not seem like much, but it's still better than putting it in a non-interest-bearing checking account. 

In some cases, you can get higher interest rates for satisfying certain requirements, such as making a specific number of deposits per month or signing up for one of the bank's other products. 

If you saved $20,000 and deposited it in a 0.6% annual percentage yield (APY) savings account, it would earn $120 in interest in its first year if you left it untouched. What's more, that $120 becomes part of your balance the following year, so the bank bases the next year's interest on $20,120, giving you $120.72 in interest the second year. 

That's the power of compound interest at work.

Maximize your retirement savings

Retirement is the ultimate example of your money working for you, which is why many financial advisors recommend saving at least 15% of your take-home pay and putting it towards retirement. You can kick off your retirement savings by making wise investments into various retirement accounts. 

Start with the complimentary money

Saving for retirement is a marathon, as it takes many years before you realize you're actually on the right path to having enough money to retire. You can see more immediate returns by focusing on complimentary money, such as the employer matching your job offers for contributing to a 401(k) account.

Many jobs will match a small percentage of your salary that you contribute to your 401(k). For example, your company may match 100% of your contributions up to 6% of your salary. So, if you earned $100,000 per year and contributed 6% of your salary, $6,000 per year, the company would also contribute $6,000 per year.  

This match is like getting a 100% return on your investment immediately. Keep in mind, though, you’ll lose this employer match if you leave the company before you're fully vested. 

On top of the employer match, you make 401(k) contributions with pre-tax dollars. Making these contributions lowers your tax burden upfront. Plus, your 401(k) earns interest tax-free. The IRS only starts taxing your 401(k) when you take disbursements. 

You can make your 401(k) work for you by maximizing it. If your income allows, aim to hit at least the maximum of the employer match. Then, work toward reaching the yearly contribution limit, which is $19,500 in 2021. If you're 50 years old or older, you can contribute up to $26,000 per year thanks to $6,500 in catch-up contributions.

On average, a 401(k) delivers a 9.5% return on investment, so if you saved at the contribution limit for 20 years, you'd have a $1.156 million retirement fund. 

Digging deeper into the numbers, you'd contribute $390,000 to your 401(k) over 20 years, and you’d earn $766,875 in interest. And this example doesn’t include any employer match or the interest gains on those matches.


Look at other tax-advantaged accounts

A 401(k) isn't the only tax-advantaged retirement account in the game. There's also the Individual Retirement Account (IRA) — more specifically, the Roth IRA. 

You fund a Roth IRA with post-tax dollars, so there are no immediate tax benefits. However, your Roth IRA grows tax-free, and you won’t pay taxes on disbursements if you meet certain requirements. 

The requirements for tax-free withdrawals are fairly straightforward: 

  • The IRA must have been open for at least five tax years.

  • The IRA owner must be at least 59.5 years old, disabled, withdrawing from an inherited account or withdrawing up to $10,000 to buy their first home. 

With an IRA, you can also withdraw 100% of your contributions tax-free. Only earnings from interest or dividends are subject to taxation upon withdrawal if you don't meet the aforementioned requirements. 

If your income permits it, take advantage of an IRA's tax benefits by striving to contribute the maximum amount the IRS allows. As of 2021, the IRS allows you to contribute up to $6,000 per year — $7,000 if you're over 50 years old.

The average return on a Roth IRA is 7% to 10%. So, if you hit the maximum contribution for 20 years and earned a 7% return, you'd have a $260,463 IRA balance. 

Drilling into those numbers, your total contributions would be $120,000, and your interest earned would be $140,463. 

Diversify with any extra funds

If you've maximized your tax-advantaged retirement accounts and still have extra cash flow to invest, you can start investing in stocks, bonds, exchange-traded funds (ETFs), real estate investment trusts (REITs) and mutual funds to help diversify your retirement savings.

You can sign up for an investment account through a brick-and-mortar investment firm, or go the more modern route with one of the many available investment apps. An investment firm will probably give you more professional advice, but the apps are far less expensive and still offer some guidance. 

No matter which path you take, speaking with an investment advisor or financial advisor to discuss your investment strategy can be wise. These professionals will look at your situation and risk tolerance to determine what types of investments are the right fit for you. 

If you choose to go with a financial advisor, they can give you additional financial advice beyond investing and help with financial planning. 

There is no IRS limit to your stock market investments. On average, stock market investments grow 10% per year. However, nothing guarantees your investments, and they can lose 100% of their value, leaving you with nothing. 

Make credit cards work for you

After paying off all your credit card debt, it may seem counterproductive to start using credit cards again. However, they can be useful tools when you use them the right way. 

Choose a credit card with the right reward points or cash back for you, and use that credit card to cover your daily expenses and bills. When the statement arrives, pay it off in full by the due date.

By paying off the credit card in full by the due date, you're paying the entire balance within the interest grace period. The interest grace period is when the credit card company does not apply any interest to your account. It's typically the period between your statement closing date and the due date. 

Using your credit card this way means you earn all the credit card rewards and cash back but avoid any interest charges. 

Stick to your budget and live below your means

Since you already went through all that budgeting to get out of debt and stabilize your finances, it’s a great time to keep the momentum going. Continue to follow your budget and make adjustments along the way as needed. 

Also, you can maximize your money's effectiveness by living to your needs, not your means. For example, while you may be able to afford a bigger house with a larger mortgage payment, you might consider staying in your current home because it meets your family's needs and is significantly cheaper. 

Living below your means like this helps ensure you have enough cash to put to work through investing. Plus, living below your means prepares you for an unexpected financial pitfall, like a job loss or medical emergency. It's easier to maintain your lifestyle during times of financial struggle when you're living below your means. 

Making money work for you: The final puzzle piece

Now that you're debt-free, it might seem like the time to kick back and enjoy your financial successes, but there's still some work to be done. The next step in your personal finance path is building wealth and letting your money work for you. 

While your money's hard at work, it remains important to stay on the financial trail you blazed, including following your budget and living below your means. 

If you're not quite at this point in the financial journey and are still dealing with credit card debt, the Tally† credit card debt repayment app can help. Tally not only rolls all your credit card payments into one monthly payment, but it also offers a lower-interest line of credit to help you pay off your higher-interest credit card debts.

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.