3 Basic Ways to Grow Your Investments

Unless you’re lucky enough to have been born with a spendthrift trust fund, you will have to make your money the good old-fashioned way—by working for it. But understanding how to make money can give you an advantage. Try these 3 basic ways to earn money, and maybe one of them could help you build a fortune.

1.Selling Your Time

This is the source of income that most people think of when it comes to earning money. This is the money you receive for selling your time to an employer, often represented as salary or wages. You’ll often hear well-intentioned parents telling their children to find a “good job,” preferably one with benefits.

The rate you receive for your time depends on how rare and in-demand your skills are. A gifted brain surgeon, for instance, can earn millions of dollars per year, because there simply aren’t a lot of people who can do the job.

Someone who pushes carts at a discount retailer earns less—not because they are any less intrinsically valuable as a person, but because many people have the ability to push carts, causing a huge supply of potential workers to drive down wages.

To earn more money, you have to invest in yourself and improve the rate you can charge, work more hours, or do a combination of the two. This type of income is the most active form of earning a living, because you only generate money when you are actually working.

Constantly working to continue making money may be fine if you love your job, but for many people, there may be other things they’d like to spend more time doing.

2. Earn Interest on Money Lent

This type of income comes from money that borrowers pay you to “rent” your capital. The term “capital” refers to money you’ve set aside for investment purposes; you’ll hear it used a lot on Wall Street.

When you buy a certificate of deposit at a bank, for instance, you are lending money to the bank in exchange for a predetermined rate of return. The bank takes the money it “rents” from you and lends it out at a higher rate, pocketing the difference.

3. Dividend Income From Profits on Businesses Owned

This represents your share of the profits of a company in which you have made an investment. If you own 50% of a lemonade stand, and the company had sales of $1,000 with costs of $500 and $500 in remaining profit, your share of those profits would be $250.

That money is paid out to you as your “cut” of the earnings. A good investment is one in which the company earns more year after year, increasing the amount of cash that is sent to you on a regular basis.

Here’s an example of dividend income: Tristan owns some rental properties. He buys real estate and then charges the tenants money to live in his houses. Tristan’s rental business is generating profit equal to the total rent he receives less any costs, such as maintenance and upgrades on the properties. At the end of the year when he takes the money out of the business, those profits represent dividend income.