- Maximizing Your Investments: Top Assets for Small Budgets - June 20, 2023
- Investing Made Easy: A Beginner’s Guide to Index Funds - March 30, 2023
- Do Index Funds Have Fees? [Don’t Overpay] - March 21, 2023
You read that right – buy things that’ll make you money.
This is not a get-rich-quick scheme, and I’m not trying to sell you anything. I just want to help you, so hear me out.
We all know how selling things for money works. Stores sell things. When we go to the store and buy something, we give them our money (It would be stealing if you didn’t).
You can do a garage sale for leftover things in the house you don’t need to make some extra cash.
But did you know there are things you can buy that’ll make you money? In other words, after you come into possession with these things, they increase in value so that you can later sell them for a higher price.
These are the exact things rich people buy that make them money. Does this sound like something you’d be interested in learning?
Keep on reading!
What is a Liability and an Asset?
Before I tell you the 5 things that can make you money, you need to understand the concept between assets and liabilities.
This will better help you better understand why buying things can make you money.
Liability
A liability is something that decreases in value after you purchase it. Examples of these include cars, clothes, electronics, cell phones, purses, etc.
When you buy a car, it decreases in value the very moment you drive it off the car lot. Companies like Samsung and Apple release new smartphones every year making previous models obsolete and less valuable.
Many people, especially in the middle class, spend lots of their money on liabilities. They spend money on a mortgage to buy a nice house, buy a fancy car and finance it with an auto loan, and splurge on luxuries – they keep on doing things that continue to take money out of their pockets.
The more you spend on liabilities, the less money you keep to yourself.
Asset
An asset is something that increases in value after you purchase it. These are the exact things we will be talking about today.
You need to own assets to make more money and grow your net worth. Assets carry economic value, that has the potential of providing capital appreciation or an additional stream of income.
What things can I buy that will make me money?
Let’s dig into the five things you can buy that will make you money. All five of these are assets that anyone can buy with a little research.
1. Stocks and Index Funds
How to make money from stocks
Stocks are partial ownership of a company. For example, if you were to buy a share of Apple stock, you technically own part of Apple. Because you own part of Apple, you get to profit as the company generates revenue and continues to grow.
There are two ways you can profit from owning shares of a company.
The first way you can profit is through share price appreciation.
This is where the price of the share you bought becomes more expensive. If you bought a share of Apple at $100.00 and the price increased to $150.00, you would’ve made 50 bucks.
“Value investors” are people who study stocks and buy stocks that are trading for less than their actual value. For example, let’s say you studied and analyzed all the information you could find on Apple such as the business model, competitive advantage, and balance sheets. You decided that Apple’s stock is worth approximately $150.00, but it’s currently trading for only $95.00. That’s $55.00 of potential upside! Picking and buying the correct value stocks takes a ton of studying and experience but can pay off in the end.
The second way you can profit is through dividends.
Companies share profits with their shareholders by distributing dividends. Apple stock only yields an annual dividend of 0.63% which is pretty low. That means the company will only distribute 0.63% of the stock price as dividends to shareholders every year.
There are other stocks with much higher dividend yields. For example, AT&N yields 7.25% annually. “Dividend investors” or “dividend chasers” are people who invest in high dividend-yielding stocks. Their main focus is to grow their portfolio through receiving dividends.
How to make money from index funds
An index fund is a basket full of different stocks that acts as one single investment.
For example, say you wanted to invest in stocks of the top 500 companies in the United States. Going out and buying all 500 companies would be too time-consuming and even more difficult to maintain.
Instead of investing in 500 individual stocks, all you would have to do is buy an S&P 500 index fund. The index fund acts as a single investment but contains all 500 stocks!
Do not confuse index funds with mutual funds. While index funds are passively managed, mutual funds are actively managed that charge hefty fees. I have an article here that explains why you should invest in index funds, and not in mutual funds.
Investing in index funds is a great way to diversify your money across many different stocks. You won’t have to worry about a company going bankrupt and you losing all the money you invested.
As a matter of fact, the 3-fund portfolio is one of the easiest and most passive strategies to be profitable in the stock market.
Here are some of the top index funds you can start investing in today.
2. Bonds and Bond Index Funds
The next thing to buy that will make you money is bonds.
Have you ever gotten a mortgage from a bank?
The purpose of getting a mortgage is so you can afford the house you want to buy. The bank lends you the money, but they’re not going to do it for free. They charge you interest.
This is exactly what bonds are.
Companies and governments issue bonds to raise money when they want to start large-scale projects. Just like you need to borrow money to buy that house, they also need to borrow money to fund these projects.
When you buy a bond, you are lending your money to the company/government. The company/government will pay you interest, and when the bond matures, they will give you back your money.
Just like stocks, there are also bond index funds. They hold a variety of bonds making them less risky. Take a look at Vanguard’s Total Bond Market ETF as an example. You can see that the portfolio holds many different bonds which adds diversification and decreases risk.
Whichever bonds you choose to buy, make sure you do it in a tax-protected account, so you don’t have to pay taxes. Interest payouts from bonds are taxed at your regular income bracket which can eat away a significant amount of your gains. In this article, I explain why you should keep all your bonds in a Roth IRA, which is one of the tax-protected accounts offered by the government.
3. Certificate of Deposits (CDs)
A certificate of deposit (CD) is similar to a savings account. The only exception is that, unlike a savings account, you cannot withdraw your money for a predetermined period of time without incurring a fee.
The “term” is the amount of time you agree to leave your funds invested in the CD. After the term is up, you’ll get all the money back you invested, along with all the interest payouts.
Different financial institutions offer different terms, but they generally range from a couple of months to several years. Let’s take a look at an example below from Navy Federal Credit Union.
As you can see, the longer the term, the higher the interest rate you get paid.
The good thing about CDs is that the interest rate is fixed. In other words, once you buy the CD, the interest rate will not change or fluctuate throughout the term.
Every financial institution offers different CD rates. Some are lower, and others are much higher. If you plan on buying CDs so you can start making money, make sure you do some research, so you know you’re getting a good rate.
You also want to make sure you can leave the money in the CD until the term ends. Select the appropriate term that fits your needs to avoid having to withdraw your money and paying the penalty fee.
4. Rental Properties
The fourth item on our list of things you can buy to make money is rental properties.
Everyone needs a place to live, which makes rental properties a great investment.
The most obvious way you can make money from rental properties is through rent. The more properties you own, the more rent you collect.
Another way you can make money is through long-term appreciation. Home prices in the United States have historically risen. This means that if you hold your properties for the long term, you probably could sell your properties in the future for a nice profit.
People also make a ton of money by flipping houses. House flipping is when you buy a run-down house, fix it up, and sell it for a markup.
A much less obvious way your rental properties can help you make money is through tax deductions. You can make tax deductions for operating expenses, property tax, and mortgage interest which in the long run would save you a ton of money.
One of the downsides of owning rental property is property maintenance. A tenant may call you at 3AM in the morning because the water isn’t working, and you would be responsible for fixing it. Some property owners hire property managers, so they don’t have to deal with tenants themselves.
How to Finance Real Estate Investments
Buying real estate can be very expensive, but there are ways around it.
I’m sure you’ve heard that you need to put down 20% for a mortgage. However, with a Federal Housing Administration (FHA) Loan, you only need to put down 5%! That means for a property that costs $250,000, you only need to have $12,500 for the initial down payment.
The catch for this type of loan is that you need to be living in the property you are getting a loan for. But there are many properties with multiple units. You can live in one of the units and rent out the rest to other tenants.
If you have ever served in the military, including the National Guard and Reserves, you can look into getting a VA Home Loan. This type of loan requires no down payment, no monthly mortgage insurance, and has lenient credit requirements.
Looking to buy a property in a rural location? The USDA Loan, also known as the Rural Development Loan, could be just for you. You have to check the USDA website to see if the property you want to buy qualifies for this loan. The website has a map where you can type the address of the property to see if it qualifies. Below is a screenshot of the map.
This loan also does not require a down payment.
There are many ways you can build the capital to fund a rental property. It just requires some research and studying on your end.
5. Recession-proof Brick-and-mortar Businesses
Finally, the last thing you can buy that will make you money is recession-proof businesses.
Buying and owning a small business comes with many pros. You can be your own boss, make your own decisions, and pursue financial independence.
Here are some recession-proof businesses you can buy.
Laundromat
A study was conducted and showed that 95% of laundromats succeeded over a five-year period, which is an extremely high success rate. Laundromats also have a high return on investment (ROI), averaging around 25-30% the first year.
Most laundromats are self-serviced, which means you don’t need to hire any employees. The machine takes the customer’s money, and the customer washes, dries, and folds his/her own clothes. All you have to do is drop by a few times a week to make sure everything is up and running properly.
Laundromats are also recession-proof. People need to wash clothes regardless of how well the economy is doing. As a matter of fact, during a recession, people tend to favor self-service laundry because it’s much cheaper than paying for dry-cleaning. Some cons of owning a laundromat would be maintenance costs and irregular working hours.
Car Wash
Another business you can consider buying to make money is a car wash.
According to Statista, there were 275 million cars registered in the United States in 2020. That’s 275 million cars that need regular maintenance and washing. It would be nearly impossible for you to service all 275 million cars, but car washes can be very lucrative if you choose a good location. According to Chron, car washes can make anywhere from $40,000 to $500,000 annually.
There are three different types of car washes. The first one is a fully self-serviced car wash. The customer pays for the use of soap and equipment to wash their own car. This is the best type of car wash if you want minimal hands-on time.
The second type is an “in-bay automatic” (IBA). This is where the customer drives his/her car into the bay, and the machine moves around to wash the car. The machine would require more maintenance than the self-service type, but you would probably be able to do the maintenance yourself without hiring additional employees.
The last type of car wash is the full-serve type. You would need to hire employees who would hand wash and dry the car. This is the most labor-intensive and requires the most hands-on.
On the downside, car washes are seasonal. For example, customers would be less willing to wash their cars in the middle of winter or during monsoon season when it’s constantly raining.
Overall, if you plan on buying a car wash, it’s important to be strategic and create a financial plan where you can withstand potential declines in business. It may be a challenge, but it’s definitely achievable.
Conclusion
I’m going to tell you the truth: there are no secrets or shortcuts to getting rich.
Owning things that will make you money requires a lot of work on your behalf. You need to research, study, and analyze whatever you are trying to buy before you make the purchase.
If you want to buy stocks or index funds, you need to learn about the stock market before you invest your money.
Looking into owning a small laundromat or car wash? You will need to learn how to run and maintain the business.
Just as the saying goes, “nothing worth having comes easy.” You will have to put in the hours. You will make mistakes along the way, but mistakes are part of the journey. In the end, it’ll all be worth it when you achieve financial freedom.
Do you own any assets? Let me know in the comments!
I was recommended this website by my cousin. I’m not sure whether this post is written by him as no one else know such detailed about my problem.
You are amazing! Thanks!
Thank you so much for stopping by! I’m glad you’ve found my blog helpful.