Money Making Ideas - What's the best way to make money?

When talking about money making ideas most of us relate to simple business ventures. For example, how to set up an online shop that multiplies your income in no time, or, how to start a successful coffee shop down the street. Each idea has its own merits and can work well for you.

On this page, we look at money making ideas in a different spotlight. It doesn't matter if you haven't got any money and are just starting out or if you are successful already.

We won't go through a list of possible business ideas but instead will be focusing on the all important principles around money making that help you make money no matter what your situation is.

Let's have a look at some basics first. The majority of the population earns money by going to work every day. For this we get paid an income regularly. However, as we know the majority of it is spent on daily living expenses and if you have a mortgage, chances are, that you pay a healthy portion of your pay to the banks. Ah, I forgot to mention the tax man who gets a big share too. At the end of the week or month not much is left in the kitty and the process starts again and again. This is generally called cash flow, money that flows from your employer to you for work done, you spend it on goods and services and pay taxes too so that it's eventually fed back into the economy.

The key to any money making idea is to break this cycle and keep more money for yourself.

The cycle can be broken by putting a cash flow management system in place. This can be as simple as having one central transaction account through which you watch every pay coming in and every expense paid out. Once you categorise these transactions and analyse what they are used for you can then make decisions on how to improve your finances. This very much goes hand in hand with personal budgeting explained on a different page in our website.

Money making ideas and cash flow management

What have money making ideas in common with cash flow management systems?

To answer this questions we first need to have a look at the four important elements of a cash flow management.

We have:

1. income - money earned
2. expenses - money spent
3. loans - money paid off
4. leftovers - money saved

Every money making idea has the above cash flow management aspects too regardless of what the actual money making process is. That's just how commercial businesses work. Personal finance is no exception here, as it is just like a "mini business" run for an individual or couple. The same principles apply.

It's the leftovers that make us financially successful or not. The more leftovers (savings) we can generate the better we are off. A cash flow management system helps achieving just that.

It allows us to reduce expenses, control outgoings or even increase income to make sure we can build up savings also known as wealth.

Look up the enclosed brochure (pdf, 248 KB) how one of our providers sets up a cash flow management system that can help you with your money making ideas.

Once we have a system in place that helps us save, we then divert such savings into a safe place and use them to make more of it. This way we let the money work harder for us and it's providing extra income in addition to our salary or wage from work. This, of course, is known as investing.

For example, when you buy shares in a motor company you will find the same four elements above again. There is the company making money from selling cars (income), the cost of developing, manufacturing and distributing cars (expenses) and using money from the banks (loans) to compete internationally to provide a profit (leftovers) that then can be reinvested and/or distributed to shareholders. It's a bit more intricate than that but money making ideas must be measured by these same principles to be viable and produce the savings you are seeking.

Fast forwarding money making ideas

It's easy to overspend but a cash flow management system keeps your behaviour in check and in no time you will find ways to increase savings. If you fast forward your chosen money making ideas into the future you should be rewarded with passive income as opposed to you actively having to earn it through work.

As savings increase over time they can produce enough passive income to replace your own salary or wage and help you achieve financial independence sooner. In other words, you don't have to got to work anymore.

Passive income is derived from savings that are invested to produce returns on their own. So it's your existing money working harder to make more of it. This is the process of building wealth that will provide you with income for live. As indicated, there is a plethora of types of investments that can help us do so. We'll explore them separately in our sub-pages.

Use investments as money making ideas

Investments are an advanced way of making money. The assumption is that we use savings which we have already accumulated. These can be in cash or equity, a non-cash form of savings, e.g. equity in a home.

We'll explore investments in more detail on our Investing for Dummies page and explain the value of investing adivce in the same context. The area of investing is immense and again some core principles remain the same throughout.

A good money making investment must have the following characteristics:

• have a healthy return - potential for income or growth;
• be suitable for your risk appetite so you can sleep at night - limit your downside losses; and
• be reasonably priced - low costs that won't eat up your returns.

Some money making ideas also revolve around investments providing a benefit through the tax system, for example Australian franking credits from company dividends. Whilst this is valid proposition they should never be pursued with the sole purpose of a tax refund in mind.

We'll detail some of these investments, tax minimization strategies and solutions that can provide a tax deduction and ultimately an income tax refund in our dedicated Tax Refund section.

Qualities of good money making ideas

Before we rely on a money making idea we need to make sure it is not too good to be true and sometimes this is not easily assessable. We have produced the following list of key criteria that passive investments must have before we would consider them.

Money making ideas must be:

• quantifiable and flexible - it must be clear from the outset what kind of return we can expect from an investment. If this is not possible to calculate or approximate it might simply be too risky. There are also investments that are very illiquid, meaning you might be stuck with them for a long time before you can get out again, no matter how well or badly they perform. Flexibility is important so you can cut losses or lock in profits.
  
  
• simple and understandable - if you don't understand what you're investing in then don't invest. There is no point in creating a stressful situation if you don't know what you're doing. On the contrary, once you know how to do it you'll start to love and replicate it again and again. That means we must understand the investment so that we can optimise returns.
  
  
• realistic and reasonable - it is sometimes a little complex to find out if returns are achievable. If you have the knowledge or skills or can relate to similar investments from experience you'll have a measuring stick. If not, you'd have to rely on research from financial professionals. If returns are incredibly high and they can't be explained, they might not be achievable at all. Professionals use back testing (running scenarios through past market situations) to see if returns of new products can be achieved. Do your research and learn from the professionals as much as you can.
  
  
• controllable and beneficial - with many investments you are at the mercy of investment managers, so it's important to know what you can do in different scenarios and what the limitations are. Again, flexibility can give you control to abandon or add to an investment if the situation requires it.

At the beginning, money making ideas are just that, "IDEAS". You then must find the investment options that make them feasible.

Setting yourself up for success

Good investments have a set of features that will assist you in achieving the results you're seeking. In short: They're reliable! Investments that are not reliable should never make it onto your shortlist and are best left alone.

Okay, we want to invest and make money in a passive and reliable way.

The first step is to set yourself up for success and develop a few personal traits that are essential if you want to be a serious investor.

These are:

• being determined and disciplined when saving;
• be willing to invest savings to create even better returns; and
• thinking twice before spending your next dollar.

With these traits you are equipped to become a smart investor and replicate what so many prior to us have achieved. Remember the millionaire who built all his wealth from his first dollar found in the street. It's no surprise that some of the biggest businessmen in the world are very tight with their money.

The right money making ideas can deliver on their promise. It could be investments in shares, artwork, managed funds, art collections, houses or bank notes or old coins an much more. Almost anything is possible if it stacks up according to the criteria and characteristics explained in the previous sections. Categories of different investments are called asset classes which we'll explore in more detail on our investing advice page.

It's time to get started now. Put some strategies in place today to achieve financial freedom tomorrow.

More information:

Investing for Dummies
Types of Investments
Investing Advice
Australian Agriculture
Tax Refund
Investment Calculator

Return from Money Making Ideas to Discover Financial Freedom

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