Have you ever heard the phrase or been told you have to “spend money to make money”? Perhaps this is a new phrase to you as personal finance is all about saving and frugal living. Essentially, the phrase means that you if you allocate financial capital or resources into a particular endeavor, you will create a platform by which you can earn more money than you originally spent.
Sounds easy enough, right? Well, it’s easier said than done. Check out a few examples of how to spend money to make money:
Buy Life Insurance. Insurance may be a form of spending for some in the form of premiums. This is specially true for traditional insurance polices as compared to investment-linked insurance called variable life insurance.
You need to spend money to secure life’s uncertainties. Basically, some treat it as a form of expense because most insurance companies only give benefits if the insured person is dead or had an accident. That means it only ‘makes money’ in the point of loss of the insured. Same goes for car insurance. The driver will only ‘make money’ if he had an accident.
Invest in the stock market. This is the classic example of spending money to make money. Buy shares of a stock, wait for its value to grow and then sell, reaping a handsome profit. Other options include mutual funds, bonds, and commodities like gold and silver. Basically, it operates in the business of buy and sell. That is to buy low and sell high.
Buy, don’t rent. It’s considerably more expensive to buy a home than it is to rent an apartment, but that extra money is going toward a property you own that has financial value for you. Especially in the current housing market, buying a home is a way to secure a very lucrative asset that someday—assuming the housing market recovers—you will be able to sell for a huge profit. Even if the market stays where it is, home repairs and upgrades go a long way in the form of house flipping.
Hire a team. If you are launching a start-up or developing a new product, you may need to spend thousands of dollars or more bringing your vision to fruition. No one person has all the skills necessary for most ambitious projects. That’s why you may need to hire managers, software developers, architects, programmers, etc. in order to bring your vision to life. As long as you own the patent, you’re the one who stands to get your money back in spades.
Invest in SEO. With the rise of e-commerce and internet nowadays, consider marketing your business online. Think of search engine optimization as the new advertising. There’s hardly a company in existence that doesn’t value advertising enough to have a separate division and budget devoted to it. They view the money they spend on advertising as a necessary expenditure that will lead to greater revenue in the future.
As the saying goes, money begets money. You need to spend money in order to make money. You have to take risks in growing and spending it in the form of investments that will give you fruits in the long run. Just a reminder though that you have to be careful in spending your money. Make sure it is prioritized in spending it to buy more assets than liabilities.