It’s crazy to imagine money working for you all the time. But all the financial experts have said it, make your money work for you. But is it really that easy to do? Maybe, maybe not. It depends on ONE factor: YOU.

If you are willing to work FIRST, then your money will work for you when you sleep, when you’re awake, and when you eat. There’s no free lunch in this world, seriously.

So, you might be wondering, what exactly do you have to do right now to make money work for you?

I can think of one: Invest in the stock market.

Why?

In my previous lesson on saving, I talked about putting money into the stock market to earn more than half a million dollars, just by putting $150/month in the Roth IRA for 40 years. It’s the power of compounding returns.

To illustrate, let’s double the amount per month to $300. Invest for the same 40 years, with average annual returns of 8% based on historical data, you will end up with about one million dollars in your account! Here are the results based on this investing calculator I used:

And because you’re young and ambitious, you know it’s going to pay off in the long haul. You just don’t know how to get started or if you’re doing it right.

This is where you’ll make serious money! It may sound scammy but it’s true. If you’re interested to be a millionaire when you retire, here are the steps on how to get started investing in the stock market:

1) Set up an investing account

You need an investment account. I use Vanguard because it has the lowest expense ratio. The catch is that the minimum contribution for every fund is $3,000. If you don’t have that much money, either save up three grand or go for T. Rowe Price or Charles Schwab, where the minimum is $1,000 for both.

I’d go for Roth IRA if you do not already have 401k account with your current employer. If you do, you would usually need to stick to whatever investment firm your employer decided to go with. The good thing is it doesn’t have a minimum contribution upfront. (My company went with Fidelity.)

2) Choose a fund(s) to invest in

Long story short, I went for Target 2050 Retirement Fund. It’s an index fund that invests in the S&P 500, with the expectation that you will retire in year 2050. And when people talk about “the market”, that’s S&P 500. Historically, it’s averaged about 8% return every year. Unless you believe someone’s going to kill the capitalism in this country, it’s pretty safe to say the trend will continue.

Here’s the asset allocation of the Target 2050 Retirement Fund I invested in:

If you don’t believe in index fund, then you might want to pick a stock. In fact, I talked about stock picking before, and it has its own merits. Find out what you’re willing to spend time on, and do it. The only equal opportunity we have against the big guys is time. Everybody has 24 hours a day. You, me, Bill Gates, Warren Buffett, Barack Obama. But what you do with your time is what separates one from another. If you go the Warren Buffett’s fundamental investing style, you might be able to beat the 8% returns year to year. Again, you need to do a lot of homework before you can beat the market consistently like him, so be mentally prepared.

3) Decide on the amount you will contribute every month

Always pay yourself first. Pay at least 10% of your income to yourself every month.

This also forces yourself to not overspend the money you should have put away to invest in.

You can repeat the same process for your 401k account, although you will probably have to use a specific investing firm to do it. If you’re getting your company’s match, then go for it. It’s like someone giving you extra 50 bucks to save 100 bucks, just take it!

4) Automate your investment process

Set up the automatic investment schedule so you don’t have to think about it every month. You can do this easily in Vanguard. Just click on “View/maintain automatic investments” and set it up with your checking accounts and you’re good to go!

But remember we talked about reautomating for maximum returns? So, remember to do it every 6 – 12 months. Your financial situation changes all the time, so you might want to invest more or less based on that. But the minimum should still be 10%.

I don’t really pay attention to the stock market even though I have a good amount of my money in it. It’s essentially pointless to look at the short-term changes because you’re focusing on the long-term end goal. In fact, if you don’t want to get heart attack and see your investment tanks in the next stock market crash, you’d better off ignoring the returns for a while. The stock market will crash again, and it will go back up again. And when the next one hits, I’ll buy even more shares when it’s on the cheap!

Pay Yourself by Investing

Nothing ever happens when you’re sitting in front of your computer and reading a blog post. Things happen when you start doing the right thing, right now.

Bottom line: Start paying yourself today if you want to be a fulfill your dream of being a millionaire, and be rich and happy.

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

2. Cash is King, Net Worth is Queen

3. Why and How You Should Kill the Debt Monsters

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

7. Why Investing Deserves Another Round of Lesson

8. The Most Important Personal Finance Lesson of All…

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