Earning Interest and Dividends on Someone Else’s Dime
Interest is, well, quite interesting. Instead of your money accumulating in your mattress or shoe box, it can now accumulate plus earn its own money. Money earning money—what a concept.
And there are multiple ways to achieve this: you can open a savings account or purchase certificates of deposits in order to earn interest, or invest in the stock market in order to earn dividends. When the interest paid to you begins to earn its own money, called compound interest, or your stocks earn you dividends purely because you own them, it becomes even more riveting.
It is commonly known that the riskier the vehicles for earning money that you choose, the more potential you have for both reward and loss. But what if you could go with the riskiest option without shouldering any of the risk, and with reaping all of the potential rewards?
Investing in the stock market—whether for short term gains or long term income replacement (IRAs)—offers the greatest amount of potential return, but then it also makes some people’s stomachs turn. Therefore, investing someone else’s money sounds like the solution for the weak-kneed investor because it will eliminate your personal risk all together.
Where to Find Money
So where can you find other people’s money? Most households in America have extra money that trickles in during the year from sources other than their paychecks. Perhaps you receive:
- A Christmas bonus
- Credit card or bank card offers
- Reward points for purchases that can be cashed in
- Monetary gifts from relatives for various occasions
- Online surveys that earn you money
- Bonuses from signing up for bank offers
- A good tax return in April that you weren’t banking on
This money is unaccounted for in your household, so it is generally a pleasant surprise. Why not make this money work for you?
How to Get Started
Open up a savings account where you can deposit all the extra cash that comes into your household throughout the year. Then choose a time frame for investing this money. Perhaps enough extra money will accumulate for you to invest it quarterly, or maybe you will have to wait until the end of the year. Remember, you can start investing at $4.00 on sites such as Sharebuilder where you can split stocks into half shares in order to afford them.
Budget your bills with the salary that you know you can count on. This way, you are not risking what you know you are working for, and will always have money to put food on the table. If at the end of this you lose everything (which is not likely if you choose investments with lower risks), you are not any worse for it. You have essentially taken away your investment risk. Any extra money you earn from your investments will be icing on the cake, and you can thank your boss, Uncle Sam, your relatives, or anyone else who has unknowingly contributed to your interest earnings.
This approach may not make you wealthy, or allow you to retire at your desired retirement age, but it will certainly get you in the investing game without feeling vulnerable to risk.
I’m just curious how “A good tax return in April that you weren’t banking on “is on “Someone Else’s Dime”. That is money that you chose to give freely to the gov without interest… getting the deflated principal back at a later date. Not a good choice for the article.
rrn124: Hello, and thank you for your comment! Good point. I suppose I took it from the perspective of money that you were not expecting to have returned to you (and thus it felt like free money). You are right–that would definitely have been your money to begin with. There are some instances where it is not, though someone could argue that you paid the taxes at some point anyway (such as the first time homebuyer’s $8,000 credit).
Thanks for reading!