Wherever your extra funds might come from — a tax refund, an inheritance, a bonus at work or even just a buildup of money in your checking account — here are a few financially savvy ways to use them.
If you have a significant amount of debt, consider putting your extra money toward paying that down or off. “So many individuals carry credit card debt or school loan debt. Using your money to pay down debt is a great way to improve your financial future,” says Susan Albrecht, senior vice president and head of Advisory Consulting Services at U.S. Bank. She advises tackling high-interest debt first.
Another way your additional funds can help improve your finances is by shoring up your savings. Albrecht suggests prioritizing an emergency fund: “You want to have at least three to six months’ worth of expenses covered so that you don’t have to use credit or tap your retirement fund if you have an unexpected event.”
If you’re already debt free and comfortable with your savings, consider boosting your investments. Albrecht says a good place to start is increasing your contributions to your employer-sponsored 401(k), 403(b), or individual retirement accounts (IRA).
If you’ve maxed out your retirement account contributions, consider non-retirement investing options, such as health savings accounts (HSAs), brokerage accounts and automated investment accounts, such as a robo-advisor platform.
It’s smart to sit down with a financial professional to determine what might be best for your specific situation.
“When it comes to investments, one of the best you can make is in yourself,” says Albrecht. “Investing in your education, or your child’s or grandchild’s education, is a great use of your money.” If you want to save for your child’s education, she suggests opening a 529 plan.
Albrecht also notes that, “Your extra cash can be used to jump start your entrepreneurial dreams and make them a reality.”
When and how you end up with a cash surplus can impact what you decide to do with the money. For example, if you receive an inheritance after a loved one dies, it’s likely coming at an unexpected and emotional time. In this case, you should take your time and consider putting the money aside until you’re ready to deal with it. Interest-bearing accounts, including money market accounts or certificates of deposit (CDs), can be a good option for short-term saving.
You can also gut check your budget to see if you have any big expenses coming up. If you pay your car insurance every six months, for example, could you use extra cash to get ahead of those payments?
Your extra money may also come in the form of a graduation gift or a holiday bonus. While these are meant to be celebratory gifts, it is still smart to consider all your options before making a thoughtless impulse buy.
Go ahead and treat yourself
While there are a number of financially prudent ways to use extra cash, it’s also okay to spend some of it on something fun — just be sure to think it through.
A good strategy is to put the money into a savings account and take some time to consider how you want to spend it. You may decide to treat yourself with a small part of it, but use the rest to pay down debt, invest or simply keep saving.