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When it comes to money, most everyone is looking for ways to generate more of it. And the truth is, if you want to make more money, you need to use the power of compounding to your advantage. Today, we’re talking about how to multiply your money with seven easy tips to accelerate your wealth.
Unfortunately, there is no magic pill or potion to multiply your money. Get rich quick only works if you win the lotto. And I don’t know about you, but I can’t buy enough lotto tickets to make that happen.
So, instead, I will share with you proven money multiplication strategies that work. Let’s get started!
Why Compounding Counts
Let’s imagine you make $10,000. If you stick it under your mattress, you’ll have $10,000 five years from now.
If you invest it instead, however, at a 7% rate of return, you’ll have $14,025 at the end of five years.
Something is strange about that math, though. 7% of $10,000 is $700. If you take $700 times five years, that’s $3,500 of return.
So, where did the extra $525 come from (the difference between $13,500 and $14,025)? Your money made money!
When you invested your initial $10,000, after one year, that became $10,700. But in year two, you earned 7% on $10,7000 – not your initial $10,000. So, you earned a return on your previous year’s returns.
This is the power of compounding. And over time, this is how you multiply your money. You get your money to work for you. Said differently, you get your investment returns to earn you more investment returns.
Rule of 72
You now understand why compounding matters. But how long will it actually take to multiply your money?
Alas comes a rule of thumb called the rule of 72. The rule of 72 states that if you take 72 and divide it by your annual investment return (expressed as a number), you’ll determine how many years it takes to double your money.
To use a simple example, let’s say you earn a 9% investment return. If you take 72 divided by 9, you’ll determine that you’d be able to double your money in just eight short years.
What if you only earned a 5% investment return, though? It would take over 14 years to double your money. And this is why multiplying your money requires maximizing your investment returns – because the higher your rate of return, the faster your money will grow.
Now that you know the basics of how to multiply your money let’s talk about some concrete strategies to do so.
Invest, Invest, Invest
If you want to learn how to multiply your money, rule number one is that you must invest. The rules of compounding and the rule of 72, as shown above, bear this out.
Let’s jump into some strategies to multiply your money.
1) Take Advantage of Your 401(k) Plan
As explained above when talking about the rule of 72, your number one goal should be maximizing your rate of return, as this is how you speed your money multiplication.
The 401(k) often offers the best return on investment available. What do I mean? I’m talking about the company match.
Many companies offer an incentive to employees to invest in their 401(k) and will match their contributions up to a certain percentage. For example, many employers will match contributions up to 3%.
So, if you contribute 3% of your income to your 401(k), your company will give you another 3%. This means you’re earning a 100% rate of return – and that’s before the power of compounding goes to work.
So, at an absolute minimum, you must, must, must invest at least enough in your 401(k) to earn the company match.
2) Invest in a Portfolio of Stocks & Bonds
Next, invest in a diversified portfolio of stocks and bonds. While there are many asset classes from which to choose, I always recommend keeping it simple to start.
While the proper asset allocation (the mix between stocks and bonds) varies based on your personal needs, stocks and bonds are the cornerstones of a diversified portfolio.
Historically, stocks have earned a higher rate of return than bonds (and, in turn, carry more risk).
However, using both stocks and bonds helps to reduce your investment risk. And over the long term, that leads to higher risk-adjusted returns.
When investing in stocks and bonds, you’ll face a decision about which accounts you should use. I always recommend maxing out your tax-advantaged retirement accounts first (like your 401(k) and IRA) before investing in taxable brokerage accounts.
If you don’t already have an IRA account, my favorite brokerage is M1 Finance. Using a tax-advantaged account, you can further multiply your money by reducing the tax obligations owed to Uncle Sam.
3) Consider Real Estate
While many asset classes are vying for your attention, one of my favorites in the “alternative investment” category is real estate.
Why do I think that real estate can help you multiply your money?
Because real estate investments offer portfolio diversification. They also often carry tax advantages (in the form of depreciation) and provide multiple potential streams of investment returns (such as cash flow, appreciation, and mortgage paydown).
And if that’s not enough, you can buy real estate investments using leverage (debt), which can help drive higher investment returns.
Of course, all investments carry risk (and leverage can amplify those risks), but real estate has proven to be a relatively stable asset class.
I follow both of these strategies (owning multiple rental units), and I also invest in real estate passively through Fundrise.
Fundrise is my favorite tool for getting started with real estate investing. It allows you to invest in a diversified portfolio of commercial real estate at low costs and with a great deal of transparency. Check out my full review to see if this tool is right for you!
4) Defend Your Fortress
While multiplying your money requires taking investment risks, I’m also a big believer that you need some safe investments as well. While these won’t necessarily grow your wealth, they will help you maintain your wealth.
One of my favorite strategies for the safekeeping of money is Series I savings bonds. The U.S. government backs them, and they ensure that your principal balance does not decline in value relative to inflation (i.e., they’re indexed to inflation)
Other options include CD ladders (my favorite CDs are at CIT Bank), high-yield savings accounts, etc.
5) Fix Your Cash Flow
Once you’re in the habit of investing, the very best thing you can do to multiply your money is to invest more. But how are you supposed to do that if you’re feeling tapped out?
The following two strategies are here to solve just that!
First, do you feel like you’re making a lot but can’t seem to find extra money to invest? Chances are, you have a cash flow problem. In other words, something is draining your wallet every month.
This can be any number of things, but the most prevalent cash flow drain is debt. Debt eats your cash flow every month – preventing you from investing in assets that can multiply your wealth.
If you have debt, make a plan to deal with it. Bear in mind, not all debt is bad. For example, mortgage debt with low-interest rates doesn’t necessarily need to be paid off quickly (as you can often do better by investing instead). However, you should pay off any debt with an interest rate higher than the potential rate of return on investments. I’m looking at you, credit card debt.
Once you deal with these liabilities, you’ll have more free cash flow to invest, helping you start multiplying your money.
6) Put Your System on Autopilot
If it feels like you’re struggling to put money into investments and you’ve already fixed your cash flow, your next step is to change your system.
If your investing system relies on you putting money aside by hand each month, you’re in trouble.
Instead, put your money on autopilot. Set up automatic transfers and investments so that money comes out of your income automatically.
Or, if you need a little extra motivation, try an investment platform like Stash or Acorns to invest your spare change automatically. While it won’t feel like much, over time, these small investments add up.
7) Earn More Money
Finally, if you’re serious about multiplying your money, consider ways you can grow your income.
Maybe you can boost your “day job” income by negotiating a salary increase. Or perhaps you can start a side hustle.
No matter how you create extra income, doing so makes it easy to find more investment dollars to multiply your money. Earning more isn’t easy, but it sure is effective.
How to Multiply Your Money: 7 Tips to Accelerate Your Wealth
Multiplying your money takes conscious effort, and it requires taking some calculated risks. To recap, here are seven strategies to help you grow your wealth.
- Take Advantage of Your 401(k) Plan
- Invest in a Portfolio of Stocks & Bonds
- Consider Real Estate
- Defend Your Fortress
- Fix Your Cash Flow
- Put Your System on Autopilot
- Earn More Money
If you’re just getting started, make sure you’re maxing out your company 401(k) match, and then begin investing on a platform like M1 Finance or Fundrise. From there, your money will start to multiply, and you’ll be well on your way to growing more wealth!