How To Make Extra Money to Save and Invest

By: GenXinvestor

Make Extra Money: hand putting a coin in a piggy bankThis post looks at how to make extra money to save and invest.  As we all know, when it comes to personal finance, success in achieving our goals has a lot to do with our own behaviour, such as, the importance of forming good habits like saving and investing on a regular basis.

If we’re serious about saving and investing, it is important to challenge ourselves and think of creative ways to achieve our goals, including finding that extra money to save and invest.

I’m reminded of the passage in Robert Kiyosaki’s Rich Dad, Poor Dad where the poor dad thinks he can’t achieve something and uses all the excuses in the world to convince himself that it can’t be done.  Meanwhile, the rich dad asks “how” it can be done.  These days, with household budgets already stretched, finding extra money to save and invest is not always an easy thing to do so I thought I’d share some ideas on “how” it can be done.

Here are 6 Ways to Make Extra Money to Save and Invest

Get a Second Job

This, of course, is an obvious way to make extra money but it is worth mentioning nonetheless.  You can earn extra money by taking on a second job in the evening or on weekends.  Personally, I find that after putting in a full day at work, going to a second job is the last thing I’d want to do.  In my case, as I have a young family, it just wouldn’t be practical.  For others, however, it could be quite an attractive option.  I knew some people, for example, who worked their day jobs and gave 1 evening a week and 1 weekend a month to the Army Reserve.  They banked that money for their retirement.  I also knew people who earned extra money by refereeing high school sports.  I guess if you’re a keener and you really want a second job, then follow your passions and interests to earn some extra cash and start investing that extra paycheque.

Sell Stuff on Kijiji or Craigslist

You may be surprised to learn that you can find money in some of the most unlikeliest of places, such as, under your basement stairs or out in the garage.  We’ve all heard the saying “one man’s garbage is another man’s treasure” and websites like Kijiji and Craigslist make it easy to turn your old junk into cash.  As a rule, I try to sell everything I can on Kijiji before throwing it out.  You’d be surprised at what some people will buy.  It is important to remember that everything has value.

Over the past few years I’ve made just under $4,000 by selling unwanted items on Kijiji.  Rather than spend the money on more unnecessary items, I chose to invest that money in my dividend reinvestment plans (DRIPs).  I’ve found this system is a win-win.  I get rid of junk and the cash I get from it is put to work making me money in my investment portfolio.  Again, the amounts don’t have to be huge – I usually just send the minimum optional cash purchase amount of $50 to $100 to buy additional shares of a given company; but these small amounts sure do add up.

I found that I made the most use of Kijiji when money was tight and I didn’t have a lot of extra money to invest.  The Kijiji money really helped me out because it allowed me to feel like I was accomplishing something on the investing front by keeping up the habit of saving and investing regularly and seeing my investments grow.

Reinvest Your Investment Income

If you’re not already doing so, reinvest your dividends, distributions and interest income to harness the power of compounding.  This is an easy way to make extra money and to grow your investments.  Run some online calculators to see the difference that reinvesting investment income makes.  Over time, you’ll see the difference is huge.  In one scenario that I ran, if a person invested $10,000 at a 5% growth rate and a 4% yield in a non-taxable account (for simplicity), after 10 years, assuming that they did not reinvest the income, they would have $16,288.95.  By comparison, if the income was reinvested, they would have $23,673.64, a 45% increase over not having reinvested the income.  If you’re interested in running your own scenarios, check out the reinvestment calculator below:

http://www.hughcalc.org/drip.php

Start Using No-Fee Cash Reward Credit Cards

An easy way to make extra money is to use a cash rewards credit card.  After all, you’re spending money anyway so you might as well earn some cash rewards in the process.  Just don’t fall into the high interest credit card trap and carry a balance.  If you’re using any kind of cash rewards credit card like the Tangerine Cash Back Credit Card, take the reward money and invest it.  I like the Tangerine credit card because the money is deposited into my savings account.  I typically get $50 every couple of months.  So, if I take this money and invest it, it works out to be about $600/year, which isn’t that bad at all.

Invest Your Work Bonus

Work bonuses are a great source of “found” money to invest and they typically come at year end, just in time for RRSP season.  Take that work bonus and put it into an RRSP.  That will give you a tax refund, which is another great source of money to invest.

Invest Your Tax Refund

Tax refunds are great for investing.  While it’s nice to get that lump sum refund once a year, I prefer to do something called a request for reduction of taxes at source.  If you are getting refunds in the thousands of dollars each year, you may want to consider a reduction of taxes at source.  Instead of waiting for that big refund when I file my taxes, I just have the government take less tax off of my pay throughout the year.  This leaves more money in my pocket to invest all year long instead of having to wait until tax season and forfeit some of the compound growth.  After all, I don’t like the idea of giving the government an interest-free loan when I could be benefitting from that money.

If you’re interested in a reduction of taxes at source, simply fill out a T1213 form and send it to your local tax services office by November for tax reductions starting in January of the following year.  A couple of things to keep in mind if you’re interested in pursuing this option is to be sure not to request too much of a reduction or else you may have to pay some of the money back.  Also, this strategy only works if you have developed a disciplined habit of saving and investing on a regular basis.  In my case, I use this money to make regular RRSP contributions throughout the year so as to ensure that I’ll have enough deductions to take advantage of the reduction of tax at source option each and every year.

The T1213 form can be found here:

http://www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html   

So there you have it, my tips on how to make extra money to save and invest.  I hope these tips help you out on your road to wealth and freedom.  If you’d like to share some of your own tips for finding extra money to save and invest drop me a line I’d love to hear them.

Photo Credit: Image courtesy of FrameAngel / FreeDigitalPhotos.net

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