May 30th, 2012Top Story How to Put Your Money to Work for You, Beyond the Basics By Alan Henry Some people have serious financial problems, but that's not you. You've got a savings account, have cleaned up your interest-bearing debt, are contributing to a 401(k), and all-around are in pretty good financial shape. So where do you go from here? What's the next step for those of us who know the basics but want to put our cash to better work? Facebook's recent IPO got a lot of people excited about investing in companies (though the subsequent tanking of their stocks post-IPO may have made many of the same people gun shy). Still, you may be wondering how you can—or if you should—get in on some of that action. Unfortunately, the depths of the market are largely off-limits to individuals with a few bucks here or there to invest, but you can boost your personal portfolio in a number of ways after you've exhausted the basics of investing. That's what this post is all about. Don't Jump The Gun: Make Sure Your Money Isn't Better Spent Elsewhere Before you jump head-first into riskier financial waters, we need to make absolutely sure that you're really at the point financially where you have money to invest. J.D. Roth, editor of Get Rich Slowly, explained that before you start looking for new ways to invest your money, make sure you have the basics covered—and we don't just mean a 401(k), a positive balance in your checking account, and a $0 credit card balance. Photo by _e.t.. Before you venture beyond the basics, make sure you've hit all of the areas on this checklist first: You have a budget. This may sound obvious, but it's important. Make sure that you have a budget and you're sticking to it, so you know at all times where your money is going, including this cash you want to save or invest. You're saving for retirement. Your 401(k) and Roth IRA are great, but they're the bare minimum. Before you start thinking about other things to do with your money, consider how much you'll need in retirement, and commit to save as much as possible to make those long-term goals. You've paid off your debt. We're not just talking about credit cards here. Your money isn't really yours until you've paid off your other debt. Student loans, car loans, mortgages, even if it's "good debt," your extra cash is better spent towards getting your net worth in the black before anything else. You have an emergency fund. Usually 3-6 months of expenses saved up and stashed away, just in case. If you don't have one, here's how to start one. You know how to save for life events and desired purchases. This means you know how to budget well enough to save for that new laptop you want, for your wedding, or for that dream vacation you've always wanted, without wrecking your budget or plunging into credit card debt to make it happen. J.D explained that if you've hit all of the points above, you're ready to start thinking about intermediate savings, or taking that extra cash and putting it aside for other things. If you're not out of debt, or don't have a fully-financed emergency fund, you're better off putting your money there instead. That can be daunting for a lot of people, because it implies you're better off paying off your home or your student loans before you start playing the investment game, or saving for luxury purchases. Of course, we've discussed how you can pay down your debt and invest at the same time, so you have options. Just choose your path wisely. Option 1: Use "Targeted Savings" to Save for Specific Goals If you have the basics covered, it's time to do some brainstorming. What exactly do you want to do with this excess money in your budget? Do you want to stash it away so it makes you more money? Perhaps there's something you've always wanted—a specific model of car, or a vacation home? Maybe you want to start your own business, or found a charity? Whatever it is, J.D. calls these goals "targeted savings," which use dedicated savings accounts and automatic deposits to keep you saving towards specific goals. He explains that this allows you to name and prioritize what you're saving for, and you can easily monitor your progress at any time. Photo by Jeff Turner. Whatever your dream is, J.D. suggests you set up an interest-yielding savings account for it, and start diverting that extra money to it on a regular basis. Consider signing up for a service like SmartyPig, which helps you save for specific goals, to help you. It's not as sexy as investing or playing the stock market, but it uses skills you already have, puts your money to work for you, and most importantly, gets you where you want to go. Option 2: Contact Your Retirement Fund Provider and Expand Your Portfolio Talking to your investment firm about what to do with the extra money in your budget implies you want to put it somewhere it can grow and make more money for you, as opposed to save it for a specific goal. A good place to start is with the investment firm that holds your 401(k) or IRA, like Fidelity Investments or Vanguard. Even if you're in a group retirement plan with your company, you can contact them about expanding your portfolio to include personal investments. It's worth noting that depending on the funds you want to invest in, you may have to front a certain amount of money just to get started, but if you have it, use it. Give the firm you have your retirement funds with a ring—they may just suggest you add the extra money to the funds you're already in, but others will be more than happy to help you open new lines of investments, and offer you some financial guidance to help you make the smart choices as well. Option 3: Hire a Financial Planner and Sail for Risky Waters Sometimes you have to spend money to make money, but a good financial planner can help you make smart decisions about other, more advanced options. Sure, a financial planner can help you make the smart saving decisions we've discussed up to this point, but that kind of advice is free—what you really want a financial planner or accountant's advice with are the tricky investment options, like these: Buy/remodel an investment property: Many people buy a condo or vacation home just for a little rental income, but if you're not sure where to start, get help before you go shopping. The market is much different now than when this was more popular, and your mileage will vary depending on where you live and what you plan to do. Start a private portfolio: Mutual funds offered by your 401(k) are one thing, but if you want to get into index funds, options, or even just start buying up stock in well-performing companies that you want to invest in, you'll need some assistance. By all means, go for it—just don't neglect your research. Consider annuities: The folks at The Motley Fool suggest annuities, despite their cost and limited insurance coverage, are an option worth considering if you've already started investing elsewhere. They can be difficult to cash out of, but they can yield decent returns if you find a good one. The key, of course, is finding a good one, and The Motley Fool has some tips on how to do that. Buy an investment vehicle: Depending on your age and the amount of risk you're willing to take, you can stash your extra money away in government bonds (low risk, low reward) or stock options and futures (high risk, high reward.) It's especially important to get a professional's help before wading into these waters: there are plenty of vehicles that do little more than fleece unsuspecting customers, so do your research and get help before writing any checks. Or, Stop Worrying and Manage Your Current Investments Instead There are plenty of options available if you're wondering if there's a way to make your money work harder for you, as you can see. Even so, the vast majority of us will have a hard enough time paying down our debt and putting together an emergency fund. We mentioned it earlier, but you shouldn't go running into the wilds of investment properties and annuities until you're in sound financial shape. There's an old adage about gambling that applies here: "Don't play with money you can't afford to lose." Photo by 401k. Despite all of these options, you may be better off simply putting your extra cash into your retirement fund, whether it's a 401(k) or an extra contribution to your Roth IRA at the end of the year. It's just easier to dump it into an interest-yielding savings account or a CD offered by your credit union, forget about it until it matures, and then roll it over or cash it out. The market rat-race can be alluring, especially when you read about IPOs that make investors boatloads of cash, or venture capitalists shoveling money into companies with big ideas and no products. However, J.D. points out that financial independence means different things to different people, and it's more than just "having a boatload of cash." Find out what it means for you, and work your way there. How are you saving for the future? Do you believe in any specific investment vehicles beyond the tried and true ones everyone should have, or are retirement funds and IRAs really enough for most people? Share your financial thoughts—and advice—in the comments below. J.D. Roth is the editor of Get Rich Slowly. He offered his expertise for this story, and we thank him. Title photo by isak55 (Shutterstock).

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