How to Double Your Money in 2021: Tips and Tricks
Doubling your money must be every person’s dream. After all, who doesn’t wish for that. A lot of people might wish for that when a genie asks them for their wish. Don’t worry though, while it might be tough to do, it’s not just something which happens solely in fantasies. There are ways to do it in real life as well. The world is filled with gimmicky schemes and fake programs that promise to double your money in an instant. Don’t worry, in this post, we won’t be talking about any such thing. We’ll only talk about the legitimate methods with which you can double your money. And don’t worry, none of these involve unnecessary risks, stumbling upon your personal oilfield or winning a mega lottery. Let’s get started.
Here are some steps that can help you double your money
Reduce your expenses
Whenever you don’t spend all of your income, the leftover amount counts as your savings. You should always create an emergency fund that contains at least three months of living expenses, Once you have built that up, you should try and invest your savings.
Your savings can be invested in tax-advantaged retirement accounts like a 401(k) or IRA. You also have the option to invest your money in taxable brokerage accounts.
Invest in Stocks
The Standard and Poor 500 (S&P 500) has averaged a 10 percent annualized return between 1990 and 2017. What that means is that even though stocks might fluctuate in any given year, if you continued investing over 27 years, your investments would’ve grown by 10 percent every year.
And let’s not act like the time period between 1990 and 2017 has been smooth sailing
What is the Rule of 72 when it comes to doubling your money?
The Rule of 72 is a shortcut that helps you figure out how long your investments take to double. In order to do that, you must divide 72 by your expected annual return rate. Let’s take the example of the S&P 500’s return. So if your annual rate of return is 10%, you can expect your investment to double in seven years.
By spending less than you earn, investing in an index fund that tracks the S&P 500, and reinvesting your gains, you could’ve doubled your money in time of seven years. And if you keep reinvesting your gains, you could’ve doubled that over the next seven years as well. Keep in mind that this is considering that the stock market continues to perform as it did between 1990 and 2017.
Invest in Bonds
Your portfolio should be a mix of stocks and bonds. It should be diversified according to your age, goals, and risk tolerance. If you don’t fit the profile of somebody who should be heavily invested in equities, such as S&P 500 index funds, try and invest more money in bonds in order to double it.
Let’s say your bonds average a return of 5% per year, according to the rule of 72, you will be able to double your money in 14 years. While this is significantly longer than the time it might take through investing in stocks, you must remember that bonds are much more secure than stocks and you don’t really have any risk of losing your money when you invest in bonds. You should always keep your risk appetite in mind while choosing your investment tool. Just because stocks double your money faster than bonds, doesn’t mean you should close your eyes and put all your money in bonds. Investing in stocks is a lot riskier than investing in bonds and you can lose all your savings in the stock market at the snap of a finger. So invest carefully and responsibly.
If your employer matches your 401(k) contributions, you have the easiest, most risk-free method of doubling your money at your disposal. For every dollar you put in up to your employer match, you will receive an automatic increase.
Let’s take this example, if your employer matches 50 cents for every dollar that you put in up to 5 percent of your pay. You are getting a guaranteed 50 percent “return” on your contribution. This is one of the few guaranteed returns in the investment world.
Even if your employer doesn’t match your 401(k), you shouldn’t worry. Retirement contributions can provide you some good amount of tax exemption. The government will still subsidize a portion by giving you either a tax-deferral up front or a tax-exemption down the road. The exact form will depend on your choice of account (Roth or Traditional).
Create Cash Flow
Instead of just accumulating your savings and waiting on compound interest to build up, try to create some cash flow for yourself. Don’t lock up all of your savings into an IRA and relinquish all control, in the hopes that things will pan out in the future. Yes, planning for the future is good, but you should also try to enjoy the present. Create some kind of cash flow to cover your basic living expenses instead of just going on a maniacal cost cutting spree and living like an ascetic. Create a realistic living expenses budget and don’t just go on extreme cost cutting measures that result in you eating just one meal per day (we are exaggerating here but you get the point). The real key to doubling your money is your level of responsibility. You must be responsible with your money, investments, and allocations. Invest in things you understand. Don’t just invest in something that worked for somebody else. Understand everything in great detail before you choose to invest any money anywhere. Doubling your money is possible, but you need to be responsible and patient in order for that to happen.