Ask HN: How can I use money to make money?

Look up /r/personalfinance, /r/fire, /r/fatfire.

Be aware that it is unreasonable to expect returns higher than ~5.5%/year over inflation — and that is if you're really prepared to lose 50% of the value of your assets and not have them recover for 10-15 years. If you are being offered higher returns, it is very likely you are not fully aware of the risks you are taking on.

Fastest way probably is to get a higher paying job.

In terms of investments, the Rule of 72 is that a return of 7 percent a year will double your capital in 10 years. So assuming that S&P 500 will return roughly 7 percent a year, expect your capital to be doubled in 10 years.

Of course there is no guarantee that the S&P 500 will continue it's upward trend it has been on.

For every bi-monthly pay period, I deposit 12% into my IRA and 4% into my regular investment account. Also, a certain amount is taken from my paycheck and deposited into my 401k.

I've deposited the maximum $6,000 into my IRA for the past two years, and I plan on doing so indefinitely. If it's December and the paycheck withdrawals haven't totaled $6k, then I'll transfer the remainder from my bank. And although I don't deposit as much into my regular investment account, whenever I see fit I'll transfer some of my bank account funds into it.

I wouldn't be able to do this if it were not for money coming in.

Another thing you can invest in besides stocks, is to invest in yourself.

For example, my SO is working hard to get a side business going writing romance novels. To do this, she's spent a few thousand of dollars on seminars and conventions with both a learning and a networking component (which has gotten her into a regular work group of published authors), learning as much as she could about the industry, money on cover artists, copy editors, proofreaders, joining promotional anthologies, buying props and make up and books to show off on her promotional social media videos, not to mention all the time in learning this stuff and writing the books.

It's starting to pay off as she already has quite a few followers and preorders for her first book that will release in a couple months, higher than some other established authors in her group. There's some authors she knows personally that were able to make $200k doing this in their first year, so she may be on a similar trajectory at this point.

And she's still working a full time job as a marketing manager (making almost six figures for that) during all this, which she's hoping by this time next year she can quit and do this full-time (needless to say, I've been the main person keeping our house somewhat in order during all this, she hasn't had the spare energy).

So yeah, that's one way you can "use money to make money".

Okay, so the most important thing about making an investment is ... that YOU are comfortable with it.

That it lives within your comfort level of risk/reward, and that you understand the downsides and the upsides. Generally, the more risky something is, the better upside. Very risk adverse? Look to something like Bonds, but the upside is lower. If you want to be comfortable, you need to factor in your timeline too. If you want your fancy new car next year, you have to steer less risky, while if you are looking at a 20-30 year timeline, a dip this fall or next year won't matter too much. And you also want a bit of diversity -- if you invest broadly, things that are going up are balanced with things that aren't doing as well.

Over a number of years, you can do very well by sticking with such a strategy. And, being comfortable means you are more likely to stick with it, rather then sell if something doesn't go great.

By far the best investment you can make is to upgrade your earning potential. I run a software consultancy and I could easily employ someone who specialized in writing software tests or a release engineer at 7x your current wage (these are unglamorous but ultimately not had things). Making 7x per hour changes the income and wealth equation dramatically. You could literally self teach both of those areas in 6 months. Two books from the library, free gitlab account, fork 2 open source projects, implement test suite, begin writing tests. Start submitting pull requests upstream when you get good.

80% of software companies can benefit from work in those two areas and they provide more value than they cost so there’s effectively infinite work.

If that field doesn’t appeal to you I’d suggest starting a business. A recent study of people who earn more than a million a year (maybe posted here two weeks ago?) has shown that it’s primarily business owners. Typically in boring, but very established value areas, typically with a local monopoly. Things like car dealerships, auto repair. The article (which I can’t find right now) also mentioned “marketing research”? which baffles me.

A clever person could learn a lot in the library over a weekend about starting and operating a business, about choosing a good business to start (businesses without a lot of competition, but a solid customer base are good. I’d choose one that will still work in an economic downturn)

Beware the taste for the expensive lifestyle. It’s easy to creep by degrees to a lifestyle beyond your means. If your expenses exceed your income it doesn’t matter how much money you make, you’ll be in debt to you reverse it. I’ve lived both ways and can tell you low expense is the only way to go.

At 20 years old, you don't need to invest, you need to level up.

Instead of paying rent, get on the property ladder by buying a property that you can live in while paying less on a mortgage than you do paying rent. It doesn't need to be large, that first house, but it will build your equity in an appreciable asset. That asset can be used (down the track) as collateral in a loan or two when you need capital.

I recommend the book "The Wealthy Barber." It breaks down the basics of personal investing - it's a great place to get started.

There's a rule of thumb that says if you have a compounding interest rate, you can divide 72 by your interest rate to get the number of years before your investment doubles. (So if you're getting 7.2%, your investment doubles in 10 years.) Also, financial planners often use 7% as a rough estimate of the average returns you'll get from a well-balanced portfolio of mutual funds.

So, again: that's roughly doubling every 10 years. So run a few scenarios in your head, and you'll see how that can pay off big time. $2,000 a year now means $20,000 when you're 30, doubling to $40,000 (at 40), $80,000 (at 50), $160,000 (at 60), and $320,000 at 70. All that from $2,000 a year for 10 years. [Which, actually was also compounding even higher between ages 20 and 30.]

And there's two obvious ways to kick that up. If you do the investment in a retirement account, it's pre-tax dollars. (So the $1,000 you're investing only means giving up about $750 of your post-tax income.) Best of all, you can withdraw it early without penalty for tuition, a first home purchase or medical emergencies.

And if your employer ever offers a match to your retirement contributions, take it. It's free money they're offering you.

There's no free lunch. Everybody wants more money so there's no easy way to get it. Roughly the possible avenues break down to the categories:

1) learn how to provide exceptional value to people who will pay for it

2) take on exceptional risk in financial markets

Personally I think we are shifting into a new paradigm in society where the challenge for most people will be not having a drastic reduction in their standard of living, not figuring out how to get a luxury car.

Read “Rich Dad Poor Dad”. It is really all you have to do to get the financial education needed to manage money well. It changed my life.

Active income before passive.

The best "safe" passive investments might net you 10% annual returns, at best, if you're as good as Warren Buffett and in a strong economy. The effort of picking those investments is pretty high though, and could well be 40 hours/week. Most other higher returning ones are gambles.

If you have $1000, you'll can expect to get back $1100. Can you invest that $1000 into your career to make more than a $1100 salary increase? Books, classes, networking? Then the next level is buying time - dishwashers, not having to use coupons, etc.

At some point, you can't just invest enough money in yourself and that's when you look into passive income.

Businesses are generally not passive income, they're just a higher cap of active income.

Read "Simple Path to Wealth" by J L Collins. Set it and forget it.