In today’s uncertain economic climate, many individuals and families struggle with tight finances, finding it difficult to make ends meet and save for the future. And, in the short term, you can bootstrap your budget and reduce your spending as well as raise fast cash. However, to truly turn tight finances around a long-term approach is necessary. It includes investing in yourself and using your time to generate cash either through your career, side-hustles or passive investing. And, in parallel, it’s important to commit to a disciplined investment strategy and taking advantage of compound interest. By pursuing both of these, individuals can create a sustainable source of income that can help them achieve their financial goals. In this article, we will explore a few long-term approaches to generating more cash in the future and turning tight finances around.
Don’t Pay Off Your Low Interest Debt Early
It’s always tempting to pay off debt like your mortgage and car loans off early. But, if you got a mortgage or car loan in the last 5-10 years chances are you locked in a low rate. With high yield saving accounts rising above 4% and Treasury bills rising above 5% you may already be able to generate cash by putting extra money in safe investments than putting extra money towards paying down low interest debt early. Even though it may feel better to reduce your debt, do the math and see if it’s better to pay off your debt on time or pay it off early. Given the current economic uncertainty, it’s always better to have a little extra cash in your emergency fund just in case.
Keep Your Existing Job
One of the biggest investments you can make is investing in yourself, and investing in how you spend your time. We moved from the “Great Resignation” to what feels like the “Great Layoff” in a matter of months. You don’t want to be the person that’s the most expensive but delivering the least! That combination usually is high risk for a layoff with the layoffs start. At minimum, make sure you’re performing in the top 50% to reduce your risk of getting laid off.
Increase Compensation At Your Job
You can find a job externally and get that pay raise but be extremely aware of how your skill set matches that pay because you do not want to be the one let go. Another approach is to strategically network, work hard and get a promotion in your current company. Though it is harder to get promoted in the current environment, opportunities do still exist. You’ll want to be positioned well when those doors open so make sure your boss, bosses boss, mentors and sponsors know your career goals. If you do end up getting laid off take these steps to stay financially stable and get a new job quickly.
Corporate Recognition Programs
Does your company have any recognition programs where you can get cash or points to buy something for a good job? Go above and beyond on a current project to get rewarded. Don’t forget, part of increasing your odds of being recognized is to be good at giving recognition to your coworkers when they do a good job too.
Take Advantage of Corporate Benefits
Go to your company’s internal website and really learn about all of your corporate benefits. You could be paying for wellness services and items and turns out your company reimburses part of that. Same with cell phone plans, subscriptions, vacations and more. To really make an impact, focus on areas you’re already spending money so that it results in a savings.
How does your compensation compare to the market?
Check Blind, and Glassdoor for roles that are similar to yours at other companies. Colorado also recently passed an Equal Pay for Equal Work law. You can find jobs posted in Colorado similar to yours to see the salary range. Note you may need to factor in a cost of living adjustment. If you are being paid less than you’re worth, use this as a negotiating tactic.
Look for Promotion Opportunities
Do you know what it takes to get to the next level? Ask your manager what gaps you need to work on to secure that promotion. Ensure that both your manager and their manager know your career goals. Create a targeted plan to look for that next step. If it’s unlikely a promotion opportunity will open up in your current org, know what orgs will likely have roles open that meet your skill set. Then, start networking with those managers and teams.
Buy Treasury Bills
A Treasury bill is a short-term debt obligation issued by the U.S. government. They have different maturity time frames including 3 month, 6 months, 9 months, a year and longer fixed timeframes. T-bills are sold at a discount to their face value. This means you will pay less than face value. Then, you’ll receive the interest + initial principle (face value) when the T-bill is redeemed at maturity. Recently, the yields got as high as 5% in early March, but have cooled off to 4%+ more recently. You can buy Treasury bills at Charles Schwab, other brokerages or Treasury Direct.
Buy Certificates of Deposits
A certificate of deposit (CD) is a type of financial instrument issued by banks and credit unions that allows customers to invest money for a fixed period of time at a fixed interest rate. Recently, CDs have been offering higher interest rates than high yield savings accounts and Treasury bills. A trade-off is customers agree to keep their money in the CD for that specified term. Terms can range from a month to a few years. CDs can be bought through banks and brokered CDs can also be bought through brokerages.
Put Your Cash In a Money Market Fund or High Yield Savings Account
While you’re planning how to best make more money in the long term, put your cash in a money market fund or a high yield savings account. A money market fund is a type of mutual fund that invests in short-term, low-risk securities. Examples of these securities include commercial paper, Treasury bills, and certificates of deposit. These funds aim to provide a higher rate of return than traditional savings accounts or checking accounts while maintaining a relatively low level of risk. Money market funds can be purchased at brokerages like Charles Schwab, Vanguard and Fidelity.
A high yield savings account is a type of savings account that offers a higher interest rate than traditional savings accounts. These accounts are typically offered by online banks and financial institutions. The best yield high yield savings accounts have been offering changes frequently. It’s good to check once a month to see if you’re still getting the best rate.
The interest rate for Series iBonds are not as high as early last year. So, Series iBonds are a good investment to have on watch although they may not be the best investment now given the current interest rates offered by Treasury bills and CDs. Until April 2023 the interest rate offered is 6.89%. You’ll earn that interest rate for the first 6 months and then will follow whatever interest rate is the set rate.
The Series iBonds are a longer term way to earn extra cash because you must hold for at least a year. After a year passes, you only lose 3 months of interest as penalty up until you’ve held for 5 years. There are some tax benefits too – you never have to pay state income tax on the interest gains! You can only buy up to $10,000 / year per person.
Due to the limitations, the Series iBonds don’t make sense for everyone but are potentially good to consider if you have a large purchase you will make in the next year or two.
Play the Long Game With Investing
Research and Form Thesis with Your Stock Investments
Have your investments been on auto pilot the last few years? Or, have you been picking the “hot” stock of the week or busy “buying the dip”? Learn how to navigate volatility and update your investing strategy accordingly. Learn about what you’re investing in, and technicals. A good place to start is learning about the 4 stages all stocks eventually go through and the stages where you make the most money. Generally, long term investing outperforms short term investing; however, it depends on market conditions and when a person buy / sold. Keep in mind that not all companies perform well over time. Don’t just buy the dip, because it could keep dipping. Do your research, form your thesis and then be patient. When your thesis breaks, sell the stock. Alternatively, put it on auto pilot with index funds and dollar cost average.
Buy Alternative Investments
While most investing discussed is around the stock market and real estate, don’t forget that physical items can be investments too. One study that looked at retired Lego sets found that on average they returned 11% a year. Business Insider found that Rolexes out performed houses, gold and the Dow Jones over the last decade. While previous performance may not be representative of future performance, it’s good to consider alternative investments as part of your investment portfolio.
How do you plan to make more money in 2023?