An influx of unexpected money opens the door to exciting possibilities, but whats the smartest way to use that extra cash? Whether it’s a tax refund, inheritance, a well-deserved bonus, or just a buildup in your checking account, it can feel tempting to indulge in a splurge. But before you book that Michelin-starred meal or schedule a dream kitchen renovation, it’s worth taking a moment to think strategically.
With careful planning, using this excess money can do more than bring short-term happiness. It could set you on the path to achieving long-term financial goals. Talking to a financial expert is always a good idea, but here are six smart ways to think about putting your extra cash to work.
It can be fun to have extra money or get a windfall out of the blue. But it also brings up an important question: what should you do with the money? There are many possible answers, ranging from smart spending to overindulging. In the end, your financial situation and goals will determine the “best” way to spend your money. There are smart ways to make the most of your money in this book.
Build Up Emergency Savings
Putting together an emergency fund should be one of your top money goals. This is extra money you can use for things like medical bills, home repairs, losing your job, and so on. The recommended amount is 3-6 months’ worth of living expenses.
If you don’t have any emergency savings yet, use your extra money to start building this safety net. Put it in an accessible high-yield savings account so it earns interest but remains available if needed. Emergency savings provides peace of mind and prevents you from racking up credit card debt during a crisis.
Pay Off High-Interest Debt
Carrying balances on credit cards or other high-interest debt is very expensive, with interest charges eating up more of your money over time. Paying this debt off with your extra funds can save you a lot in interest payments.
Make a list of your debts and put them in order of highest interest rate to lowest. First, put as much money as you can toward the debt with the highest interest rate. Then, make the minimum payments on the other debts. Put the amount you paid toward the first debt toward the next one that’s more important. This “debt avalanche” method saves you money and helps you pay off your debts quickly.
Contribute to Retirement Accounts
It may seem like a long way off, but saving money now is the best way to have the money you’ll need in the future. When you get extra money, put it into tax-advantaged retirement accounts like 401(k)s and IRAs or put more money into them.
Aim to invest 10-15% of your income toward retirement annually. The earlier you start saving, the more time your money has to grow through the power of compound interest. Consistent retirement contributions now can help ensure you have enough income later in life.
Invest for Other Goals
Once high-interest debt is paid off and you have emergency savings established, investing extra money can help you achieve both short and long-term goals. Examples include:
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Saving for a home down payment Invest in lower-risk assets like bonds and CDs You want your money to grow some but can’t risk losing principal near the purchase date
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Funding college education Use a 529 college savings plan to help pay future tuition and expenses tax-free,
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Earning higher returns: Open a taxable brokerage account and invest in stocks, mutual funds, and ETFs. Keep timeline and risk tolerance in mind.
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Building wealth: Max out tax-advantaged accounts then invest additional money. Carefully chosen investments can grow substantially over decades.
Make Extra Mortgage Payments
If you’re a homeowner, making additional principal payments on your mortgage can help you pay it off faster and save substantially on interest charges over the loan’s term. Even an extra $100/month can shave years off a 30-year mortgage along with thousands in interest.
Be sure your lender applies the extra amount to principal only, not future payments. Also prioritize higher interest debt before making extra mortgage payments.
Set Money Aside for Large Purchases
Do you have a major purchase coming up, like buying a car, making home renovations, or funding a dream vacation? Designate part of your extra money specifically for that goal.
By saving up, you won’t have to finance the purchase. And you can earn interest by keeping the money in a high-yield savings account in the meantime. Even something like building up funds in advance for annual bills can be helpful.
Increase Your Income Streams
Instead of just spending a windfall, you could use some of the money to establish additional income streams. Examples include:
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Starting a side hustle doing freelance work, consulting, etc. Use funds to cover start-up costs.
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Buying rental real estate that generates monthly passive income over time. Make a down payment on a property.
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Investing in dividend stocks that make regular dividend payments as a form of investment income.
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Starting a small business that has long-term income potential. Use for start-up capital.
Multiple income streams help grow your money and provide financial stability. The initial investment can get them going.
Give Some Away
Don’t forget the joy of giving. Use some of your extra money to support causes and organizations you care about. This includes nonprofits dedicated to everything from humanitarian aid to animal welfare, medical research, fighting poverty, and more.
You can also help people directly by giving funds to individuals in need, such as family members struggling with bills. Experiences are often more memorable than material things, so you may choose to spend money on doing something kind for others.
Treat Yourself Responsibly
It’s perfectly fine to spend some of your extra money enjoying life or treating yourself to something you wouldn’t normally buy. Small splurges here and there can boost your happiness and motivation to keep making smart money moves.
Just be sure to allocate wisely and keep your bigger picture goals in mind. Limit treats to an amount that won’t derail other important priorities. And try choosing experiences over things when possible, as they tend to provide more lasting fulfillment.
The Bottom Line
A cash infusion presents an opportunity to improve your finances and achieve goals. Prioritize responsible saving and investing strategies first when deciding what to do with extra money. But you can also spend a little to increase happiness, help others, and celebrate wins. A balanced approach helps ensure your money is put to optimal use.
Plan ahead and take action
Unexpected cash doesn’t have to mean fleeting joy. With intentional use, it can become a stepping stone toward achieving your financial goals. Whether you’re tackling debt, growing your savings, or treating yourself, having a plan makes all the difference.
Looking for ways to start investing or need help crafting a financial strategy? Learn how we can support you on your financial journey.
Go ahead and treat yourself with extra cash.
Not every dollar has to be earmarked for practical purposes. It’s okay to use some of your extra cash to celebrate or enjoy life’s little joys. The key is balance. Set a portion of your funds aside for something fun, like a weekend getaway or an item youve been eyeing, while channeling the remainder towards more significant goals.
One smart strategy? Deposit your excess money into savings, give yourself a cooling-off period, then decide on a small treat while keeping most of the funds working for you.
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FAQ
What should you do differently with your money?
Here’s another important thing to do differently with your money: Pay attention to your online spending habits. Because being able to quickly buy something and have it delivered is like having a magic lamp in a bottle. who drains your bank account with every click of that “buy now” button. How can you keep yourself in check here?.
What should I do with my extra money?
And one of the best things to do with some of your extra money is to earn interest in an FDIC-insured (Federal Deposit Insurance Corporation) bank account. There’s no risk to you, and that little bit of extra interest can help cover living expenses or compound your savings over time. Look into certificates of deposit (CDs) with your bank, too.
What should you spend your money on?
One of the best things you can spend your money on is yourself. Investing in your own education and development is always a wise choice. Whether it’s taking a course, buying books or attending seminars, improving yourself will pay dividends in the long run. Another great way to spend your money is on experiences rather than things.
What to do with extra money in your bank account?
There are various quantities you can track and blank options. It comes in black & white as well as color. Another great way to use that extra cash is to invest it in the future. Put the money in your retirement account or open up an IRA to start saving some money toward your retirement. Are you constantly overdrawing your bank account?.
What can you do with excess money?
In my opinion, the best thing you can do with excess money is invest in yourself. Don’t overlook the option of investing in yourself with the money you have. This could come in many varieties. You might get more education, degrees, or certifications that make you more marketable for better-paying jobs.
How can I make extra money work for me?
Here are all the best ways to make extra money work for you. Pay off high-interest debt, such as credit card debt, to save money on interest charges. Increase your emergency fund to cover three to six months of living expenses. Contribute more to retirement savings or invest in ETFs or mutual funds for diversified growth.
What is the best thing to put your money in right now?
Best investments for beginners401(k) or another workplace retirement plan. This can be one of the simplest ways to get started with investing and comes with some major incentives that could benefit you now and in the future. Mutual funds. ETFs. Individual stocks. High-yield savings accounts. Certificates of deposit (CDs).
How can I double $5000 quickly?
A diversified portfolio of stocks and bonds is the traditional way to double your money, and it’s probably the best choice for most investors. Investing to double your money can be done safely over several years, but there’s a greater risk of losing most or all your money when you’re impatient.
What’s the smartest thing to do with your money?
Use extra cash to tackle financial goals, like paying off high-interest debt, building an emergency fund, or boosting your investments. Consider investing in personal or professional growth, whether it’s taking a course, starting a business, or saving for future expenses.
What should I be doing with my money?
- Start saving, form a savings habit, and pay yourself first!
- Open and keep an account at a bank or credit union that meets your needs.
- Track your savings and investments, and monitor what you own.
- Plan for short-term and long-term goals.
- Build up emergency savings for unexpected events.