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Most financial advisors will tell you a variation of the same principle: in order to be financially successful, you need to make your money work for you. It sounds simple enough, but many people continue to chase money, working hard for every last dime, and then get stuck in a reactionary cycle so that they’re always left working harder to get more money.

This cycle continues unless you learn to interrupt it.

So, how can you make your money work for you? And what are some activities that prevent your money from working for you?

Ways That Your Money Can Work for You

High Yield Savings Account

The average savings account has an APY of .08%, but many online high yield savings accounts yield more than 2% in annual interest. Moving your savings to a high yield savings account won’t make you rich, but it will probably cover your Netflix subscription and a few other costs each month.

Review Investment Options

There is no “one size fits all” investment plan, so it’s important to review your investment options from time to time. You can analyze your diversification, asset allocation, and fees to ensure that you are investing in a way that makes sense for you.

At North Financial Advisors, we often see people choosing funds recommended by friends or family. These choices are generally based on high annual returns, but they don’t take fees or the risk (or lack of diversification) associated with the choices into account.

Too many of these investments result in a volatile portfolio. Volatility makes it more likely that you’ll make changes when there’s a market downturn and you’ll miss out when the markets inevitably return.

Long-Term Stock Market Growth

Once you have high-cost debts paid off and a solid emergency fund in place, it is time to put some money in the stock market to maximize your long-term savings.

You really shouldn’t invest in the market for the short-term (goals less than 3-4 years), because the only way to enjoy the full potential of the stock market is to stay invested for a longer period of time.

Otherwise, you’ll probably bump into short-term market fluctuations and run the risk of gaining very little or maybe even losing some of your savings just at the time when you might need it.

Ways That Your Money Is Not Working for You

It is a common mistake to assume that financial planning is easy. The truth is, there’s no silver bullet for building wealth other than a long-term savings rate and slow, boring investment strategies.

There are no products or special investments out there that can reliably make a quick buck month after month. All investments carry risk, and the only way to consistently see positive returns is to invest for the long-term (5-10 years, or ideally longer).

However, it is still common to make errors in judgment regarding your finances.

So, what are some mistakes that prevent your money from working for you?

No Monthly Savings Plan

If you’re still living paycheck to paycheck or you’ve let lifestyle creep run your life, you’re always going to end up behind the curve in terms of wealth building.

At every pay increase or bonus, you should be reviewing your finances to see how much you can save in light of the bonus, instead of making plans to spend it.

It takes some planning and commitment to get the savings part down, but once you do, it will make a huge difference in your financial plan.

I like sharing with my clients that they should focus on savings first and then spend the rest – it works!

Not Enough Diversification

When you concentrate too much of your wealth in one company via stock options or systematic stock picking, you open the door to several huge problems. If you’re offered stock options at work, there’s likely some pressure to buy into these stock options.

But what happens if your company has a big PR blunder, falls short of expectations, or simply becomes less relevant over time? Now, not only is your salary at risk due to potential layoffs, but your wealth is at risk, too.

The same problems arise when you invest too much wealth in individual stocks. Maybe you believe in the company now, but will you be able to weather the changes the company faces over time?

There are countless examples of stock values falling dramatically when companies experience a loss of relevance, business model changes, or PR nightmares (in the last year look at Facebook, Square, and Google, to name a few).

Do you really want to risk your long-term wealth by putting all of your eggs in one or two baskets?

Not Getting the Most Out of Salary Negotiations

You are valuable and the knowledge you have can make a real difference for companies. The number of raises and bonuses at a given company are generally finite, so you need to find ways to quantify your value and emphasize your successes throughout the year.

It is wise to keep a list of your achievements on hand, including the quantified impact that you have had on people, clients, and your company’s budget. Keeping this on hand is great for impromptu conversations with your boss, during a review or during a reorganization. When negotiating, you should also never assume that the first offer is the final offer.

Whether you are applying for a new job or negotiating the salary for your current job, always advocate for yourself and look for ways of expanding the pie.

Is your money working for you? What methods do you use to grow your long-term wealth? Tell us your thoughts!

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