Is Your Money 'Lazy'? Here’s How to Put It to Work

A piggy bank wearing sunglasses sits on the beach. — (Image credit: Getty Images)

You may have heard the saying, “Don’t work for your money, let your money work for you,” but what does that really mean? When it comes to personal finance, it means taking action to avoid having “lazy money.”

The term lazy money refers to funds you’ve earmarked for retirement that are not actively working to generate returns. One of the most common examples of lazy money is cash that’s sitting in a low-interest savings account, earning minimal interest. It may not seem like a big deal, and you might even feel you’re being “safe” by having that extra cushion, but lazy money can hurt you financially, limiting your ability to grow your wealth.

To effectively manage your money, it’s important to know the difference between saving and investing. Saving refers to money that’s earned but isn’t spent. Saving is crucial for financial stability, but that doesn’t mean you shouldn’t diversify your portfolio. While it may be more secure and insured, keeping all your money in a low-interest savings account minimizes its potential to grow. And even worse, it may be losing value due to inflation. “If you’re not moving forward, you’re moving backward,” as the adage says.

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When you invest your money correctly, you’re essentially making the money you’ve earned grow. Investing in securities, mutual funds, stocks and bonds can increase your wealth, but it can also bring more risk. The market is volatile, which means you have the potential to get great returns, but that also means you could lose some — or even all — of your principal. That’s why it is so important to diversify your portfolio.

Once you appreciate the difference between saving and investing, you can begin to develop a plan of action that suits your needs. Here are some steps you can take to start making your lazy money work for you:

Grow your retirement fund

Retirement is one of the biggest goals for working Americans, but making sure you have a big enough nest egg to sustain your lifestyle can be daunting. If you have extra money sitting around, consider increasing your 401(k) contribution. Most employers will match your contributions up to a certain amount, so try to get into your employer’s pocket as much as possible, as it’s free money for your benefit.

If you don’t have a 401(k) — or even if you do, and you want to maximize your saving potential — consider opening an individual retirement account. IRAs can be opened through a brokerage firm, bank, credit union or mutual fund provider. Even if you have an employer plan and have maximized your annual contributions, you can still also have your own IRA and contribute to it, whether it’s a traditional IRA or a Roth IRA.

Pay off debt

Additional funds that are not going toward an emergency fund can be used to pay down or pay off debt. Paying off debt won’t necessarily grow your money, but it will boost your credit score, saving you a lot of money on interest in the long run. Plus, it gives you the freedom to grow your nest egg.

Invest

Making the right investments can double or even triple your wealth. Consider purchasing stocks, bonds, mutual funds, ETFs, annuities, cash value life insurance, even real estate or cryptocurrency. But remember, with any investment there’s risk.

Before investing, make sure you understand how much risk you’re comfortable taking. A financial adviser can help address your concerns, ensuring you make the right investment for you. You should revisit your risk tolerance every few years, as your life, situation and investment time horizon will likely change over time.

Seek out 'safe money' options that yield more than bank accounts

Banking products such as savings accounts, money markets, and certificates of deposit can be attractive to more conservative investors or those who may want to stay away from the market during times of volatility. Many of these are completely liquid and insured by the FDIC for up to $250,000. However, there are other options with little to no downside market risk. Products like multi-year guaranteed and fixed index annuities, principal-protected and structured notes, and indexed universal life insurance all have the potential to generate greater returns.

Build and diversify your portfolio

Once you’ve identified your risk tolerance, you can begin building and growing your portfolio. Investing in multiple accounts and securities can maximize your earnings while minimizing your risk, but be sure to consult a financial adviser first. The last thing you want to do is put your finances in jeopardy by making the wrong choices. An independent professional can help you create a portfolio that supports you and your loved ones.

Making your money work for you is one of the keys to financial success. Allowing your money to become “lazy” limits you from reaching your goals, prevents growth and can even cost you, depending on the state of the economy. Once you’ve taken care of your bills and contributed to an emergency savings fund, utilize the rest in a way that financially benefits you. Maximizing your dollars instead of letting them become stagnant can help improve your financial situation and increase your financial freedom.

Investment advisory services offered through Brookstone Wealth Advisors, LLC (BWA), a registered investment advisor. BWA and Beckett Financial Group are independent of each other. Insurance products and services are not offered through BWA but are offered and sold through individually licensed and appointed agents. Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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JB Beckett has been an adviser for 24 years and is the founder of Beckett Financial Group, a specialized financial firm that helps individuals and businesses in the Retirement Red Zone build Tax-smart Retirement Income Blueprints allowing them the freedom to overcome their concerns about inflation, market volatility and taxes to retire sooner.