Got extra cash? Here’s how to put your money to work


According to data from the US Commerce Department, the personal savings rate jumped to 20.5% in January, up from 13.4% the month before. That’s way above the 6% to 8% range it has hovered around in the past decade.

Paying down high-interest debt is always a priority. But those lucky enough to have some extra cash may be wondering: What else can I do with it?

“When you first come into extra money … you might feel excited to spend the money or pressured to invest it quickly,” said Daniel Kellogg, senior financial advisor and financial planning income specialist at Personal Capital. “But taking your time to make an intentional decision can help you avoid regret or feeling like you wasted an opportunity.”

Spending or investing aren’t your only options for managing extra cash. Here are some other ways you can put your money to use.

Beef up your emergency fund

“When you’re fortunate enough to have extra money, such as a bonus, inheritance or tax refund, avoid the temptation to go on a spending spree,” said Laura Adams, author and host of the Money Girl Podcast. “Instead, take a holistic view of your finances and consider where you might be vulnerable. For instance, if you don’t have a healthy emergency fund, use your windfall to build up a cash reserve.”

Most financial experts suggest having at least three to six months’ worth of living expenses saved up. That way, you’ll have immediate access to that lifeline when you need it most.

“Having cash in the bank is a critical way to ensure your safety if something unexpected happens,” said Adams.

Make a goal and go after it

If you’ve stacked up enough cash in your emergency savings and are still unsure of how to put your extra funds to use, refer back to your financial goals.

“Keep your goals in mind,” said Mark Reyes, a certified financial planner and financial advice expert for money management app Albert. “If you already have that emergency fund set up and you’re feeling financially healthy, think about all those other financial goals that you’ve been holding off.”

Reyes suggests reflecting on your most important financial goals by writing out why each goal is essential in one sentence or less. From there, he recommends selecting your top three and allocating your funds based on what’s most urgent.

Another approach is saving half and spending half of your extra money.

By doing this, you’ve saved a portion of your funds that you can put to use responsibly. You’ll also have money left over to spend on something that can bring you joy or help you stay stable during these times, Reyes said.

Give your retirement contributions a boost

Extra cash can be a great way to boost your retirement savings. Financial advisors generally recommend contributing at least 10% to 15% of your income toward retirement, or if possible, maxing out your 401(k). Be sure to keep in mind IRS contribution limits, and if your employer offers matching contributions, try to contribute at least the minimum amount to earn the full match.

“There’s so much uncertainty in the future that if you don’t have a solid retirement account funded, then you’ll have fewer options available to you down the road,” Reyes said. “You may have to continue working until you’re 70 or 75.”

Refinance your mortgage

Should I refinance my mortgage?
While mortgage interest rates have climbed a bit above historic lows, average rates are still lower than years prior. With that in mind, you may want to consider refinancing your mortgage for a lower monthly payment for the next few years.

Using extra cash to pay down refinancing fees upfront can help you avoid paying extra interest down the road.

Before refinancing, consider calculating what your estimated monthly mortgage payments may be, as well as any fees associated with refinancing and the proposed new terms.

Fund your own business or side hustle

Got a business or side hustle you’ve been wanting to get off the ground? Extra cash can be a great way to jump start or support your entrepreneurial endeavors.

Be sure your personal finances are in order, first. From there, you can start to allocate cash toward a business fund that can help with expenses, such as supplies, shipping or marketing materials to grow your business.

“Make sure that the prerequisites of having a solid personal emergency fund and having your finances in check are taken care of before you jump into a new business,” said Reyes.

Stash away cash for the holidays

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You can avoid holiday debt if you plan ahead. By using your extra cash to set up a budget ahead of the holidays, you’ll have cash reserves you can pull from for any gift-giving.

Consider what you’ve spent in previous years during the holidays to anticipate how much you’ll need to save for the forthcoming year. A good rule of thumb that experts suggest is spending no more than 1% of your annual salary on gifts.

Start saving for college

For parents with young children who have healthy retirement savings, you may even consider opening a 529 college savings account to get a head start on saving money for college.

“That allows for dollar-cost averaging and the power of compounding to happen,” he said. “By the time your child is of college age, you can withdraw from a larger or potentially larger account.”

Treat yourself

There are also several other ways to treat yourself with extra money. That could look like saving up for a post-pandemic vacation or investing in a self-improvement course.

Remember: Investing in yourself is just as important and can reap rewards that benefit your well-being, productivity and self-care. But don’t do it at the expense of other critical areas of your finances, said Adam Deady, a certified financial planner for MassMutual.

Keep in mind the importance of remaining disciplined with your finances and making smart money decisions you can be happy with.

“Discipline is essential to healthy finances,” he said. “If you come into extra cash, do not view it as free money to spend however you’d like.”



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