If you have a chunk of extra money, there are hundreds of tempting options for how to use it. But what ways are the most helpful for your long-term financial situation? Here are some of the best ways to use your money when you’re wondering what you should do with extra cash.
What should you do with extra cash?
Whether you received a large tax return, inherited a sum of money, or found out that one of your antiques is worth more than you thought, it’s always exciting to have a chunk of extra cash lying around.
While it’s super tempting to use your extra cash to purchase that boat you’ve been wanting or buy a new flatscreen tv, you need to decide whether you want to use that money to benefit you in the short term or in the long term, too.
Our advice: if you have extra money, don’t blow it.
If you have a big purchase on your wish list, start saving for it. By building up some cash every month, you can work toward your goal, and your new boat or car or that fancy shoes will feel so much more rewarding.
When a chunk of extra cash lands in your lap quickly, there are plenty of great ways to invest it. While the gratification may not be instant, using your extra cash to improve your long-term financial situation will pay dividends in the long run.
So what should you do with that extra cash? Here are some ideas.
Pay off debt
First of all, chip away at your debt. If you have outstanding credit card debt, car loans, or personal debt, use some of your money to make a sizable payment. Remember that you’re paying interest on whatever debts you have. Any amount that you can pay above and beyond the required payment reduces what you pay in interest overall. This means you save money in the long run!
Establish or build your emergency fund
If you don’t have an emergency fund, this is the perfect time to start one. Everyone should have an emergency fund for those unexpected catastrophes. When your car gets totaled or a medical emergency arises, you shouldn’t have to scramble to come up with the funds. Your emergency fund is there for those unpredictable circumstances that will inevitably arise.
If you don’t have an emergency fund yet, start by saving up $1000 to use for these unforeseen circumstances. Next, work toward saving up enough to cover 3-6 months’ worth of expenses should the need arise.
If you’re currently working on building up your emergency fund, this is an excellent use of your extra cash.
Invest in your retirement
Investing in your retirement is one of the best ways to make your money work for you in the future.
If your employer offers a 401(k) match, investing in your 401(k) offers an excellent payback on your investment.
With a lump sum of cash, you may also consider starting or investing in a health savings account (HSA).
Still not sure what you should do with your extra cash?
Investing is a big decision. What you do with a small amount of money now can make a BIG difference twenty or thirty years down the road.
At Milestone Wealth Management, we want to help you make the best investment decisions for your individual situation. We’ve helped dozens of individuals and families prepare for their future financially. Let us help you make a comprehensive plan that makes your money work for you. Book a meeting today to get started!