Make Your Money Work For You

by Brion Lau

One of my favorite quotes from the Richest Man in Babylon is “…to put each coin to laboring that it may reproduce its kind… and help bring to thee income, a stream of wealth that shall flow constantly into thy purse.” In other words, don’t just work hard for your money, make it work even harder for you.

Upon further reflection, I believe this quote is promoting two key concepts–leverage and investing. Either of these concepts alone will help increase your wealth. Together, however, they become an even more powerful combination.

Leverage is particularly interesting because there are many ways we can use money to make money. Some basic examples that should be familiar include:

1. Bank – loans to purchase income producing properties or start/finance your business venture
2. Investors – loans from private investors, family, and/or friends
3. 401K – free money from your company in the form of dollar matching
4. Roth IRA – tax free dollars invested provided you meet specific conditions
5. Employee Stock Purchase Programs (ESPP) – discounted stocks that can be resold at fair market value.

The more ways you can finance your investment streams, the faster you’ll be able to build and accelerate your personal wealth. This brings me to the second concept.
Smart investing also comes into play when you find ways to “fund” your investments. For instance, if all you do is park your money in a high-yield bank account or CD, you’re not really accelerating your wealth. At best, you’re trying to keep up with the pace of inflation which is a losing proposition.
Instead, when I started out, I kept enough reserves in cash to cover contingencies (i.e. if we suddenly lost our job or had a personal emergency). Then, we started to invest our money so that it could start working for us. Some initial ideas to consider include:

1. Blue chip stocks that pay an attractive dividend (and reinvest those dividends to purchase more shares rather than spend the proceeds)
2. Real esate investment as a triple play (depreciation, appreciation, and income)

As you become more experienced with leverage and investing, you’ll probably discover even more sophisticated vehicles to further accelerate your wealth. By then, your money will be working harder for you rather than the other way around.

Here’s to your wealth and personal financial success!