How to make money while you sleep
Key takeaway: Compound interest, dividend investing and cash back programs can help you earn money while you’re focused on other things, like sleep.
Sometimes it feels as though there aren’t enough hours in the day to fit in everything you want to get done. Relationships, work, exercise – the list goes on. When it comes to how to make money, however, we have good news. There’s a simple and straightforward way to make money even while you sleep: saving and investing.
Investing for the long term is not as complicated as it might seem. In fact, it’s even possible to make money while you sleep. If this sounds too good to be true, it’s not! However, it’s important to emphasize that investing for the long haul won’t get you rich overnight.
Here are some of the ways you can invest your money so it grows at a level of risk you are comfortable with.
1. Compound interest
When it comes to investing and saving, the earlier you start the better. This lets you take advantage of the magic of compound interest and potentially addresses your “how to make money” dilemma.
There are several ways you can earn interest on your money. The most straightforward is to open a savings account at a bank. Such accounts tend to offer a low rate of interest compared with what you could earn by investing in other assets, but they are essentially risk-free. Guaranteed income certificates are another lower-risk investment that pays a fixed interest rate. You could also buy government or corporate bonds. The institution to which you lend or deposit your money pays you interest for the privilege of holding your cash. And here’s the best part: this interest compounds.
A simple way to buy bonds is through exchange-traded funds, or ETFs. By bundling several bonds into one investment, such as an ETF, you may remove a lot of the potential risk involved in buying the bond of an individual company. ETFs can also track equities, which tend to offer the potential of higher returns.
But back to the compounding part. This means you earn interest not only on your original investment but on your interest too. A compound interest calculator shows how this works. For example, if you set aside $1,000 in an investment that may potentially earn 2% interest annually, you would have over $1,200 after 10 years. That’s over $200 you earned for doing absolutely nothing. Sure, it’s not a lot. But what if you committed to saving $50 a month during that period? After ten years you would have $7,850, with over $850 earned in interest alone. This is where we get the idea of earning money while you sleep.
Stocks that pay dividends are companies that pay their shareholders a portion of the profits they earn. If you buy a stock in such a company, you receive a dividend. For example, if the company pays a 0.5% yearly dividend and you own $1,000 in its shares, you get $5 each year. Again, that may seem like small change, but year over year, and with bigger amounts of money, it adds up. Many famous investors are big proponents of dividends. Once again, you are in effect earning money for doing nothing other than holding the stock. Notice a pattern here?
It’s important to note that companies can choose to cancel or reduce their dividend payments – but they can also choose to raise them!
3. Reinvest dividends!
Another neat thing about dividends is that you can reinvest them as you receive them. Once again, we see the power of compounding in action. Instead of spending your dividend income, you add it to your original investment. This means your money grows faster. In turn, you earn more in returns and in future dividends. Many investment funds reinvest your dividends automatically.
4. Other ways to make money (but while you are awake)
While investing for the long term is a great way to make money while you sleep, there are other ways to earn money while going about your daily life. How about cash-back programs? Often offered by credit card companies and banks, these programs give you back, in cash, a certain percentage of all you spend using your credit or debit card. For example, a 1% cashback credit card earns you $10 for every $1,000 you spend. This adds up, especially if it is money you were going to spend anyway.
There are all sorts of customer reward programs that allow you to earn money directly and indirectly. Some offer you discounts on future purchases, like reward points you can redeem at airlines or hotel chains to reduce the cost of travel.
Start slow; seek help if needed.
Remember, you don’t need a ton of money to start investing. Even $50 or $100 a month can make a big difference. And it doesn’t require a lot of work. To get started, you can check out some options for buying Fidelity ETFs. What’s most important is that you start. You can’t grow money you don’t save.