How to make 'lazy' money work harder for you

Money can be classified into four different types:

• Working money (not to be confused with slave money) is out there working for you through your investments.
• Slave money is the money you earn in exchange for your time.
• Safe money is the money you have set aside to keep you safe so you can sleep soundly at night - for example, your personal buffers, insurances, metals as a hedge against a weak economy or currency, and savings. 
• Lazy money is any money in your life that is not working as hard as it could be for you.

Want one big key to wealth building? Turn your lazy money into working money. Let's look at some examples of lazy money that might be sitting in your life right now and that could be a hidden treasure just waiting for you to uncover it and put it to work.

Lazy money type 1: Underutilised savings

People often think of money in the bank as 'safe' money. That may be true to an extent, however, there's a limit to what savings can do for you when they're simply sitting in cash. You are constrained by how much interest the banks are willing to pay you, which is usually not much; and if left to the ebb and flow of inflation, then you'll likely be going backwards. This is why cash is trash when it comes to wealth creation. Great for a little bit of protection and sound sleep, but you'll never save your way to wealth.

So decide what you need for your buffers and savings, then decide what savings you're not putting to good use. This could include excess emergency funds, untouched savings for long-term goals that aren't being optimised or surplus cash you haven't allocated to any particular purpose.

While savings are important for financial security, you need to balance them with opportunities for growth. Don't let your savings sit idle; find a way to make that lazy money start working for you.

Lazy money type 2: Wasted dollars

Wasted dollars are exactly what they sound like - money that has slipped through the cracks owing to inefficiencies in your financial habits. It could be high-interest debt, excessive fees, inefficient loan structures, unclaimed tax deductions, unnecessary expenses or those sneaky unused subscriptions that quietly drain your bank account every month.

It's important to identify any money-wasting habits and get a clearer picture of how much extra cashflow you could have each month once these leaks are plugged. 

Something to note: a dollar without a plan and purpose will naturally flow towards low-value, low-priority activities. If you don't give that money a job, it will slowly evaporate from your life, leaving you wondering where it went.

The goal is to turn wasted dollars into working dollars by allocating this newly freed-up cash to something that will serve your long-term goals. It could be paying down other debt faster, building up your emergency fund or moving that money into investments that will generate higher returns. The key is to give every dollar a clear purpose, whether that's wealth building, debt reduction or strategic savings.

Lazy money type 3: Untapped home equity

Let's talk about one of the biggest sources of lazy money: the untapped equity in your home. Now, I know many people love the idea of having a mortgage-free home or building up equity over time, but here's the thing: while that money is tied up in your property, it's not actively working to build more wealth for you.

The good news is you can unlock your equity and put it to work without selling your home. Options like home equity loans, home equity lines of credit or refinancing allow you to access that money and use it strategically. Maybe it's to fund another investment, to start a business or even to make improvements to your current home that will increase its value.

Of course, tapping into your home equity comes with responsibility. You don't want to pull out this money for low-value purposes; after all you have to pay it back at some point. If you're going to be pulling equity out, it should be used for wealth-building activities - things that will give you a reliable return on your investment. Think of it as redeploying a lazy asset to something more productive. The goal is to make sure that, by leveraging your home's equity, you're putting yourself in a stronger financial position down the road.

I've seen many investors over the years access their equity and use it to rapidly grow their portfolios, from investing in real estate to deploying into high-income earning opportunities. It all comes down to a mathematical equation: If I can access x amount of equity at x percent interest and use it to earn y percent return, then is it a good deal or not? And is the return worth the risk?

Consider the flipside of this risk. What if you don't access your equity and get it working for you? What impact could that have on your financial results?

Lazy money type 4: Poor-performing assets

If you have been investing for a while, then it's highly likely you have had that one investment - or maybe more than one - that just isn't pulling its weight. Whether it's a stock that's consistently underperforming, a piece of real estate that's not giving you the returns you hoped for or your retirement savings, these poor-performing assets are a classic example of lazy money. They're stuck in your portfolio, doing very little to help you achieve your financial goals.

The first step in dealing with poor-performing assets is to recognise them. It's easy to hold onto an investment, hoping it will turn around or simply because you're emotionally attached to it. But here's the truth: sometimes you need to cut your losses. If an asset has been dragging its feet for too long, it's time to reassess whether it's worth holding onto or whether that money could be better used elsewhere.

Once you've identified these lazy assets, the goal is to replace them with something that offers better potential. The important part is making sure that every asset in your portfolio is actively contributing to your overall wealth-building strategy. Remember, your money should be working as hard as you are - don't let it stay lazy.

This is an edited extract from Escape the Middle (Wiley $32.95), republished with permission and available at all leading retailers.