If you suddenly got some money, what would you do with the extra funds? Maybe you were lucky enough to win the lottery or a raffle or you just received a cash gift or inheritance – how will you spend that unexpected windfall?
Some people might think about splurging on something. Others may consider saving some of it. If you have a lot of debts, this could be used to get yourself free from debt.
Whatever you decide, make sure that it’s going to make your financial life better. Because getting this type of financial blessing is rare. You need to make the most out of it.
Why? Because at some point, you might end up in a tough financial situation. Then you’ll think about the extra funds that you got and you’ll regret it if you spent it irresponsibly.
Usually, it is during tough times when we realize how we should be using our money. Take the recent pandemic and recession that happened in 2020. When the world was struggling because of health and financial threats, people opted to save more.
While this is an impressive feat, it may have been too late for some people. Especially when companies started letting go of people.
This is a perfect scenario that should convince you to spend your extra funds wisely.
Tips to spend your extra funds wisely
There are many ways that you can spend your money wisely. If you don’t go crazy after you received it, you should be able to come up with a great way to spend your money so it improves your life.
Here is a list of the different ways you can do this. While any one of these is a smart way to spend your extra cash, this list is arranged according to importance. So if you have limited resources, try to fund the first one then go to the next in case you still have extra money.
Increase your emergency funds
The first thing that you should do with your extra money is to boost your emergency fund.
What does it mean to have enough emergency funds? Ideally, this fund should be equivalent to 6 months worth of expenses. So if your monthly expenses amount to $5,000, you need at least $30,000 in your emergency fund.
But here’s the thing, it’ll take forever to save up for that amount. And if you have debts and you’re behind on your retirement contributions, you don’t have to meet the ideal 6-month fund. What you can do is to make sure you have at least a couple of thousands – may be good for one month if you can afford it. Once you have that, you can go ahead to the next priority on this list.
Pay off debt
If you still have enough extra funds after making sure you have some money in your emergency fund, then it’s time to think of your debts. This is especially true if you have a lot of credit card debts. The high-interest rate on these cards will cost you a lot.
The best way to save money on your debt payments is to pay it off as quickly as possible. This is why this comes next in importance after emergency funds. You have to use your extra money to pay off as much debt as you can. If it’s not enough, know the priority debts – like the high-interest ones.
Add to your retirement savings
If you have more extra funds after putting money in your emergency fund and debt payments, look at your savings. To be specific, consider adding to your retirement contributions.
One of the many ways to secure your financial future is to save for your retirement. You want to contribute as much as you can early because of the compound interest. It can quickly grow your savings because the interest is also added to the previous interest accumulated. This is on top of the money that you saved in the fund. That’s how amazing this is in helping you save enough for your retirement.
But the key is to contribute as much and as early as you can.
Use it for personal development
In case you still have enough extra funds left after all three are done, use what’s remaining for your personal development. It can be anything that’ll help you improve your financial situation. Maybe you can invest in a course that’ll allow you to earn more. Or learn a skill that you can use to start your own business.
If you can be smart with how you use your extra money, it’ll help you develop better financial management skills. It’s just like what happened during the pandemic and recession of 2020. When Americans faced these problems, they were forced to make smarter choices with their money. To do that, you have to learn better financial skills. This is what 76% of Americans went through – they gained at least one personal finance skill. They either cut down on expenses, paid off their debts, or made it a habit to save more. These are all good personal skills to develop because they’ll help you improve how you manage your money.
How to add extra funds this year
Having extra funds will really help you bring significant improvement in your life. At least, as long as you use it correctly. But is there a way to increase the extra money that you have? That way, you can fund all four options mentioned?
Yes! You don’t have to wait on lady luck to give it to you. Here are some tips that you can use to increase your extra money.
Live within your budget
The first thing you can do is to keep yourself from unnecessary debts. How? Make sure that you live within your budget. The fastest way to land in debt is by overspending your budget. If you can live below your means, this is better. That way, there will surely be something left from your income. Anything that’s left can be used as your extra funds.
Admittedly, it’s hard to live below your means. But if you practice practicality, it becomes possible. Make sure that you are making smart financial moves to ensure that you won’t overspend your monthly budget. If it’s not a necessity, don’t buy it. Check out all your bills and make sure that your expenses are still needed. If not, then stop paying. This will allow you to save more money in the process so you can use it to boost your emergency or retirement fund and pay off your debts.
Start a side hustle
Another option to get more extra funds is to start a side hustle. Find a way to earn more. Sure, you can ask for a raise. But that would be limited. So just figure out how you can set up another source of income. Find an online job that’ll allow you to work during your free time. It’s usually a good idea to use your hobbies or anything that you’re skilled at. That way, this extra work that you’re doing won’t feel so miserable with the extra hours you’re working.