ption 1: Use "Targeted Savings" to Save for Specific Goals
If you have the basics covered, it's time to do some brainstorming. What exactly do you want to do with this excess money in your budget? Do you want to stash it away so it makes you more money? Perhaps there's something you've always wanted—a specific model of car, or a vacation home? Maybe you want to start your own business, or found a charity? Whatever it is, J.D. calls these goals "targeted savings, " which usededicated savings accounts and automatic deposits to keep you saving towards specific goals. He explains that this allows you to name and prioritize what you're saving for, and you can easily monitor your progress at any time. Photo by Jeff Turner.
Whatever your dream is, J.D. suggests you set up an interest-yielding savings account for it, and start diverting that extra money to it on a regular basis. Consider signing up for a service likeSmartyPig, which helps you save for specific goals, to help you. It's not as sexy as investing or playing the stock market, but it uses skills you already have, puts your money to work for you, and most importantly, gets you where you want to go.
Option 2: Contact Your Retirement Fund Provider and Expand Your Portfolio
Talking to your investment firm about what to do with the extra money in your budget implies you want to put it somewhere it can grow and make more money for you, as opposed to save it for a specific goal. A good place to start is with the investment firm that holds your 401(k) or IRA, like Fidelity Investments or Vanguard.
Even if you're in a group retirement plan with your company, you can contact them about expanding your portfolio to include personal investments. It's worth noting that depending on the funds you want to invest in, you may have to front a certain amount of money just to get started, but if you have it, use it. Give the firm you have your retirement funds with a ring—they may just suggest you add the extra money to the funds you're already in, but others will be more than happy to help you open new lines of investments, and offer you some financial guidance to help you make the smart choices as well.
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Option 3: Hire a Financial Planner and Sail for Risky Waters
Sometimes you have to spend money to make money, but a good financial planner can help you make smart decisions about other, more advanced options. Sure, a financial planner can help you make the smart saving decisions we've discussed up to this point, but that kind of advice is free—what you really want a financial planner or accountant's advice with are the tricky investment options, like these:
Buy/remodel an investment property: Many people buy a condo or vacation home just for a little rental income, but if you're not sure where to start, get help before you go shopping. The market is much different now than when this was more popular, and your mileage will vary depending on where you live and what you plan to do.
Start a private portfolio: Mutual funds offered by your 401(k) are one thing, but if you want to get into index funds, options, or even just start buying up stock in well-performing companies that you want to invest in, you'll need some assistance. By all means, go for it—just don't neglect your research.
Consider annuities: The folks at The Motley Fool suggest annuities, despite their cost and limited insurance coverage, are an option worth considering if you've already started investing elsewhere. They can be difficult to cash out of, but they can yield decent returns if you find a good one. The key, of course, is finding a good one, and The Motley Fool has some tips on how to do that.
Buy an investment vehicle: Depending on your age and the amount of risk you're willing to take, you can stash your extra money away in government bonds (low risk, low reward) or stock options and futures (high risk, high reward.) It's especially important to get a professional's help before wading into these waters: there are plenty of vehicles that do little more than fleece unsuspecting customers, so do your research and get help before writing any checks.
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Or, Stop Worrying and Manage Your Current Investments Instead
There are plenty of options available if you're wondering if there's a way to make your money work harder for you, as you can see. Even so, the vast majority of us will have a hard enough time paying down our debt and putting together an emergency fund. We mentioned it earlier, but you shouldn't go running into the wilds of investment properties and annuities until you're in sound financial shape. There's an old adage about gambling that applies here: "Don't play with money you can't afford to lose." Photo by 401k.
Despite all of these options, you may be better off simply putting your extra cash into your retirement fund, whether it's a 401(k) or an extra contribution to your Roth IRA at the end of the year. It's just easier to dump it into an interest-yielding savings account or a CD offered by your credit union, forget about it until it matures, and then roll it over or cash it out. The market rat-race can be alluring, especially when you read about IPOs that make investors boatloads of cash, or venture capitalists shoveling money into companies with big ideas and no products. However, J.D. points out thatfinancial independence means different things to different people, and it's more than just "having a boatload of cash." Find out what it means for you, and work your way there.
How are you saving for the future? Do you believe in any specific investment vehicles beyond the tried and true ones everyone should have, or are retirement funds and IRAs really enough for most people? Share your financial thoughts—and advice—in the comments below.
J.D. Roth is the editor of Get Rich Slowly. He offered his expertise for this story, and we thank him.
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