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2 ways to make your money work for itself

Saving money is one thing. Investing it is another.

Many Australians choose to stash their surplus earnings away in bank accounts and might even put a little extra in superannuation. If your aiming to be financially independent in retirement, it’s a good strategy.

But it’s not good enough if your retirement is looming in the next 10 or 15 years and you don’t have the amount of money you need to be independent. Placing your hard-earned cash in a term deposit or savings account earning 4% interest is not going to make you rich.

To quote a famous businessman, Robert G Allen: “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

If you want the retirement you hope for, you’ll either have to earn more money, pay a lot less tax or invest. It might sound harsh but the reality of it is, it’s that simple.

What’s the first step?

Making the decision to invest requires courage. Your nest egg will be split up and put into various markets or assets and is able to drop in value just as quick as it goes up – sometimes quicker!

But there’s no risk without reward and our capitalist society is designed to reward us for taking on risks others won’t. After all, why else would we do it?

The first step is determining whether, or not, you can devote the time towards your future. Sounds like a silly question when you think about it, but most people shrug it off and say: “It’s too hard.” Believe me, it’ll be harder not to do something.

Once you’ve got a rush of self-belief and want to invest in the stock market. You can go one of two ways.

The first allows you to invest directly, as a retail investor, buying and selling shares through an online broker. You can add a stock recommendation service to your arsenal (they’ll tell you what to buy and when) for a fraction of the cost of a financial advisor.

This is the way many everyday investors invest. It cuts out the middleman but provides the expert advice of seasoned stock market gurus at a low cost. So you’ll become a better investor in the process.

The second way you can get involved in the world of investing – with relative ease but slightly higher fees – is through a fund manager. These can be quite expensive but potentially lucrative. In them you’ll pay various fees for service, even when they lose money and choosing a fund can sometimes be more difficult than investing for yourself.

A number of successful and well-known fund managers exist including Macquarie Group Ltd (ASX: MQG), Magellan Financial Group Ltd (ASX: MFG), Platinum Asset Management Limited (ASX: PTM) and Perpetual Limited (ASX: PPT).

Foolish takeaway

The world of investing is a scary place. But fortunes certainly favour the brave. So if you’ve still got a few years till you retire, perhaps it’s time you took control of your finances and weigh-up your alternatives. It might not be as hard as you think.

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