Ways to Make Your Money Grow

The right saving and investment strategies can lead to high returns.

Just because money doesn't grow on trees, doesn't mean you cannot watch your wealth grow over time without much intervention. Financially savvy savers and investors know that anyone can build wealth by learning to spend less, save more, invest and plan for the future, eventually establishing a sizable nest egg and enough money to enjoy life without living paycheck to paycheck.

Taxes

One of the most overlooked ways of growing wealth is directly related to your federal income taxes. While it may seem like a good idea to pay more tax than you owe to ensure a refund during tax season, doing so can mean a loss of valuable interest earned on the overpayment in the months leading up to tax season. For example, in 2010, the average taxpayer receiving a refund overpaid the government by $3,036, averaging out to more than $250 per month. The same money could have been earning capital gains for the tax payer until tax season, resulting in average gains of more than 15 percent for money invested in stock index funds in 2010.

Save

It's never too early or too late to start saving money. If you make it a regular habit to aggressively save a portion of your income in an easily accessible savings account, you are less likely to take out loans from lenders when you need access to immediate cash. This means you will pay less interest in your lifetime than the average consumer, who doles out more than $600,000 in interest over the course of his life. Instead, you can use the money you save on not making interest payments to invest and grow your wealth.

Invest

Regarding investing, if you have money, you can make money. Depending on how comfortable you are with risk, you can choose to invest aggressively in high-risk investments for the highest possible returns or opt for a conservative investment portfolio with relatively low-risk investments and low to moderate returns. Remember, however, you should avoid investing before you pay off your high-interest debt, as interest on debt can offset your potential returns.

Retirement

If your employer offers a 401(k) retirement account, take advantage of it. Many employers will match your annual contributions, essentially offering you free money for saving for retirement. Your money will grow tax-deferred, decreasing your taxable income and freeing up more cash for your personal investments and savings. If you do not have access to a 401(k) through work, open an IRA. Though you won't receive free contribution matches, you can contribute to the account with the same tax benefits as a 401(k).

Expert Opinion

Avoid low-return investments such as government bonds. Some experts, such as Michael Brush of MSN Money, suggest that investing in government bonds will result in a loss of money, rather than a gain. Similarly, he suggests that investing in low-interest savings accounts and certificates of deposit will result in dismal growth that won't even keep up with inflation rates. Instead, he suggests investing in limited partnerships within the energy sector, as they offer high-yield returns and annual distribution of profits.

References

• "USA Today": Average Income Tax Refund Jumps by 10% to $3,036; Sandra Block; March 23, 2010
• CBS Money Watch.com: 2010 Stock Market Returns; Alan Roth; December 31, 2010
• MSN Money: Make Your Money Grow 7 - 12%; Michael Brush; September 3, 2008
• Visual Economics: A Lifetime of Debt - The Average American's Financial Journey
• The Motley Fool: How to Invest $20, $100 and $1,000 (and More)