How to earn extra money?

Time to Read: 5 mins

How to earn extra money? Big Question, Let’s solve this with practicality. Money only can earn you extra money. You just need to maintain a balance between the expenses and the savings to start generating extra income.

“A simple fact that is hard to learn is that the time to save money is when you have some.” —Joe Moore

Generally, people try to save money by keeping it in the savings bank account where most banks give very less rate of interest (ROI) (4% approx.) on the whole income. The benefit you get here is that you can take out your money anytime if required but the profit on the whole savings amount in the long term is almost negligible if inflation is considered. So, why not do something innovative with the income? Why not decode a plan to earn extra money from the income itself? Let’s Start.

Decode a plan

How to increase or earn extra money from the income itself? The solution is INVESTMENT. How to invest and where to invest, we will discuss below. But before that how much actually, you should invest. So, for that the decoded plan, we will tell you, to follow is to maintain a healthy a ratio between savings, expenses and investment and the ratio, we recommend is 5:2:3. Let’s go through an example

  1. See the income you are generating, say ₹30,000/monthly = 100%
  2. Calculate your expenses which includes rent, food, luxury, and the other needs, say ₹15,000.
    • So, 50% of income basically are your expenses which may decrease on increase based on your income and needs. But try to limit your expenses to as minimum as possible, as the less you spend, the more you save.
    • Finally, Income left = ₹30,000 – ₹15,000 = ₹15,000
  3. Now, with left income, you should save some amount for urgent purpose and invest other amount and let it grow. It is recommended to put 20% of the total income in the savings bank account.
    • 20% of total income = 20 % of ₹30,000 = ₹6,000
    • Income left = ₹30,000 – ₹15,000 – ₹6,000 = ₹9,000
  4. You are left with ₹9,000 amount which is actually 30% of the total income, and this amount should be invested and let money earn extra money for you.

Hence, we will recommend you to follow 50:20:30 ~ 5:2:3 scheme, to save and earn extra money. Again, this ratio is not fixed, it may change based on your requirement, but try to follow as much as you can.

Where to Invest?

Now, savings, expenses done, even investment amount is decided but where will you invest the decided amount? Let’s not worry, we will give five basic ways or techniques where you can grow your income and beat the inflation. These five techniques include traditional as well as trivial ways of increasing the income.

One more interesting thing, from the above example, we are having ₹9,000 amount ready for investment. Let’s take a time frame of 5 years and will compare the profit on ₹9,000, between below investment options and savings account option (considering 4% of ROI).

Profit on ₹9,000 if invested in savings bank account = 4% of ₹9,000 for 5 years = ₹2,000 approx.

So, let’ start with traditional ones first.

Fixed Deposit

Here, investors are given a higher rate of interest compared to the regular savings account until the given maturity date. The interest may vary from 5% to 8%.

For comparison, let’s take an interest rate of 6.5%, which most banks provide if the amount invested in fixed deposit for 5 years.

Profits earned = 6.5% of ₹9,000 for 5 years = ₹3,000 approx.

Recurring Deposit

Unlike a fixed deposit, where investors invest the whole amount at one go, here investment can be done on monthly basis for a certain period of time and generally the rate of interest (ROI) on recurring deposit (RD) is high as compared to fixed deposit.

Here, let’s consider ROI as 8%, then,

Profits earned = 8% of ₹9,000 for 5 years = ₹10,000 approx.

Above ones are the traditional ways to increase income and are a risk-free investment. Investors make profits but the income follows a steady growth. What if you want to grow income exponentially? Yes, you can achieve the same through below techniques but except PPF, rest two carries some risk, so invest wisely. Once invested, you will see exponential growth in the income and it happens because of thepower of compounding. So, let’s go through each one of them.

Grow Money Exponentially

Mutual Fund

It is the most desired investment which most people start with very few amounts. It gives a very high rate of interest if invested in good funds but again more interest means more risk, so before investing, please go through funds’ documents carefully.

There are lots of stocks or bonds in the market. You can think Mutual fund as a company, where several people join and invest their money in these portfolio. From stocks, the company makes a profit and shares the profit in some ratio like the company takes some profit and shares other profit with the investors.

Generally, interest rates are high but these are completely dependent on funds you take. But for the assumption, let’s consider an average ROI as 12%. (Compounded)

Profits earned = 12% of ₹9,000 for 5 years = ₹17,000 approx.

Stock market

Above in mutual funds, we discussed that some company (assumed) is investing in stocks and then the profit made is shared within the company and investors. But, what if investors want to invest in stocks directly, without the intervention of the middlemen? Why share the profits, why not take home all the profits? If you are thinking the same, then the Stock market is for you.

But, wait, it’s not that easy as it looks. Here, you have to invest in the stock after proper research and a good study because as we told earlier, chances of making profits, if increases, the risk will also increase my friend. So, if you are investing in stocks directly, you need to know, Stock market, bonds/Stocks you are planning to invest, also, have to invest lots of time to study stock and all these come with a little risk. So, most people prefer mutual fund as these things are done by the mutual fund company itself.

You cannot compare stock market interest, as it can be anything and obviously a lot higher than mutual funds as direct benefits will be transferred to you without the middle person intervention. So, if you are willing to work hard and smart, then you can invest in the stock market. 

Public Provident Fund (PPF)

  • If you are willing to invest for a long period of time with a good interest rate, then PPF is for you. It is a scheme backed by the Government of India for long term investment and offers a good interest rate of 8%. Let’s see some benefits that distinguish it from other investments.
    • A Scheme backed by Government of India
    • Risk-free investment
    • Invest, starting from a minimum ₹500 to a maximum ₹1,50,000 in one financial year
    • The amount can be invested at one go or in a maximum of 12 installments per year
    • Maturity period is 15 years and can be extended thereafter in blocks of 5 years
    • All the accumulated balance is exempted from wealth tax
    • Offers a good interest rate of 8%
    • Interest earned is compounded annually
    • Returns are fully exempted from Tax
    • Get facilities such as a loan from the 3rd financial year up to the 6th financial year

*All ROI are subject to change, as it is based on banks and government policies, so before investing in any of the above investments, please do research manually too.

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2 thoughts on “How to earn extra money?

  • 19th July 2019 at 12:26 pm

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  • 16th August 2019 at 7:54 pm

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