Most people earn money by working: you give your time and get paid. There is a second way. Money you have saved can be put to work so that it earns more money, even while you sleep. In this lesson of Mondosol’s Make Money course, Kofi explains how that works, what the options are, and why every option comes with some risk.
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In this article
Two ways to earn money
- Active income: money you earn by working, such as a salary, hourly pay or payment for a job. When you stop working, it stops.
- Income from what you own: money earned by things you own, such as interest from savings, dividends from shares, rent from property or profit from a business.
Almost everyone starts with active income. The idea is to use part of it, step by step, to build the second kind.
How money grows over time
When your money earns a return and you leave that return in, next year you earn a return on the return too. This is compound interest. Here is what happens if you put aside 1,000 kr every month. The yearly returns are examples only, not a promise; real returns go up and down.
| Years | Paid in | At 0% | At 3% a year | At 5% a year |
|---|---|---|---|---|
| 10 | 120,000 kr | 120,000 kr | ~139,700 kr | ~155,300 kr |
| 20 | 240,000 kr | 240,000 kr | ~328,300 kr | ~411,000 kr |
| 30 | 360,000 kr | 360,000 kr | ~582,700 kr | ~832,300 kr |
Look at the 30-year row: at 5% a year, more than half of the final amount comes from growth, not from what was paid in. The biggest helper is time, which is why starting early, even with small amounts, matters.
Ways money can work for you
Savings account
Low risk and easy to reach. The interest is usually small and may not keep up with inflation, but it is the right place for your emergency fund.
Funds and shares
A share is a small piece of a company. A fund holds many shares at once, which spreads the risk. Over long periods shares have often grown more than savings accounts, but they can fall a lot in a bad year.
Property
Rent can bring in money each month, but property costs a lot to buy, needs repairs, and is often bought with a large loan.
A business or a skill you can sell
A small business, an online shop or a product you create once and sell many times (like a course or an e-book) can earn money. It takes a lot of work at the start, and many small businesses do not make a profit.
The truth about “passive income”
You will see many videos promising easy “passive income”. Be careful. Almost every way to earn money from what you own needs either money (to invest), time (to build something) or skill (to manage it). If someone promises high returns with no risk and no effort, it is very likely too good to be true, and it may be a scam.
Risk: the price of growth
- Higher possible return usually means higher risk. There is no safe way to get rich fast.
- Spread your risk. Do not put all your money in one thing.
- Only invest money you will not need soon. Keep your emergency fund in cash first.
- Watch the costs. High fees can eat a large part of your growth over many years.
- Pay off expensive debt first. Paying off a card at 20% interest is a guaranteed “return” of 20%.
Watch: compound interest and passive income
Video: “What Is Compound Interest? | Investopedia” by Investopedia, on YouTube.
Video: “Passive Income Explained” by Sartorial Wealth Inc., on YouTube.
Try it: Kofi’s first money worker
- Check that you have a small emergency fund first.
- Choose an amount you can put aside every month without stress, even 200 kr.
- Ask an adult you trust, or your bank, what low-cost options exist for long-term saving where you live.
- Write down why you are saving and for how long (5, 10 or 20 years).
- Set it up to happen automatically, then check it once a month, not every day.
FAQ
How much money do I need to start investing?
In many countries you can start with small monthly amounts in a fund. The habit matters more than the size at the start.
Can I lose money by investing?
Yes. Shares, funds, property and businesses can all lose value. That is why you keep an emergency fund, spread your risk and invest for the long term.
Is passive income really passive?
Rarely at the start. Most income from what you own needs money, time or skill to build and some care to keep going.
Should I invest or pay off debt first?
Expensive debt, like a credit card, usually comes first, because its interest is often higher than what investments can reliably earn.
Keep learning
- Practise it: open the interactive Make Money lessons in your learning journey.
- Previous lesson: Rich Dad Poor Dad: key ideas.
- Next lesson: The cash flow quadrant.
- Related: The power of saving and compound interest and emergency funds.
This article is educational and is not financial advice. Investments can go down as well as up, and past growth does not promise future growth. Kofi is a character from Mondosol’s story cast. Example numbers are made up to show how the idea works.
