How do you make money?
Imagine that a kid comes up to you and asks “hey, how do people make money?”. I bet I know the reply you would come up with. I’m pretty sure you would say “people earn money through working”.
Most of us go to school for at least 12 years (that’s not counting kindergarten). We go there to learn skills and gather basic knowledge. The ultimate end goal? Finding a job that suits you and eventually build a career if you’re up to it.
The message is always:
“Earning money is hard, and labor is the only way to get money.”
Investing
What they don’t tell us in school is that going to work is not the only way to earn that doe. There are multiple ways to get an income, and one of them is investing.
Investing = putting money into financial schemes, shares, property… with the expectation of achieving a profit.
Investing has become increasingly popular since covid hit, but many still don’t quite understand how it works and how you can make money with it.
Well, put simply: investing is the art of letting your money create more money for you.
How to make money by investing?
Like I said, the purpose of investing is to make a profit. There are a couple of ways to do that.
1: Interest
Interest is the money you pay to the bank when you get a loan. You don’t just pay back the sum you received, you’re adding a percentage to that as a surplus. With the interest – that is determined beforehand – the bank earns a fee for their services.
You can earn interest too. Not by starting to give out loans though, I wouldn’t recommend that. But there are saving products or safe investments that give you a return on the money you put in. For example: some life insurances guarantee that you’ll get the total of your savings back at the expiry date, plus a fixed interest. *
2: Increasing value
Whenever you buy an investment, you do that with the expectation of making a profit. The stock, fund, ETF… you purchase could possibly (hopefully 😃) increase in value over the years. When you decide to sell the investment after a while at a higher price than what you paid for it, you earn money. This is called value investing.
Important note: investing is not gambling. You need to do proper research before you buy anything.
In my course ‘Newbie to investor‘ I teach you how:
- you should prepare for investing
- the stock market works
- to determine your investing strategy
3: Dividends
When a company is successful it might decide to pay out dividends to its stock owners. That means that they share part of their profit. It’s a way of saying “thank you” to the investors, because selling stocks generates an income the company can use to expand or develop new products.
Obviously, in order to receive high dividend payments you need to invest high amounts of money (you receive a percentage per stock that’s in your portfolio). But even a low dividend income can be nice because it is a bonus after all. You can either reinvest the extra cash or do something fun with it.
4: Tax benefits
If you don’t like paying taxes, I have good news for you! There are several investments that allow you to claim tax advantages. For example: in Belgium (and a lot of other countries) you can deduct the payments that you make in a pension fund. That means that you either lower the amount of taxes you need to pay, or that you get cash back from the government.
A really satisfying way to make money, in my opinion. Unless you enjoy paying taxes of course 😉.
Conclusion
A job is not the only way to make money. Investing is a way to create another income and there are several methods. Whichever option you choose: make sure that you start by educating yourself because knowledge bring you a lot further than guessing.
*Disclaimer: always do your research and read the fine print before you invest.
Download my free guide:
‘How to start investing‘
