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Are you one of the lucky ones that has money left after you pay all your monthly bills?
Many people have a tough time figuring out what to do with their money.
Should they save it, invest it, buy something nice for themselves?
In this post, I answer the question of what should I do with excess cash with 15 things that you should consider doing.
It doesn’t matter how much cash you have, be it $10, $100, or some other amount, these are all great ways you can use this money to get ahead financially.
Table of Contents
What To Do With Excess Cash? Here’s 15 Ideas
#1. Pay Off Debt
One of the best things to do with extra money is pay off outstanding debts.
Potential debt you could focus on paying down include credit card debt, your car loan, and student loans.
The reason you should consider paying off this debt is the interest it is costing you a lot of money.
High-interest debt, like from credit cards, easily keep you from growing your wealth.
And any debt makes it tougher to get ahead.
After all, you when you have debt, you are paying someone else instead of saving and investing that money.
In other words, you are giving your money to someone else to build wealth and not yourself.
So if you have any debt outside of your mortgage, make it a point to put extra money towards these debts to get rid of them as quickly as possible.
#2. Invest In Your 401k Plan
An easy way to use the money is to consider making extra contributions into your 401k plan.
- Read now: Learn the pros and cons of 401k plans
Your 401k is the best way to save for your retirement because in many cases, your employer contributes money in addition to what you contribute.
An added bonus are the tax benefits.
Every dollar you contribute lowers your taxable income since 401k contributions are pre-tax dollars.
So if you are in the 25% tax bracket, every dollar you contribute saves you $0.25 on your taxes.
It might not sound like a lot of money, but it adds up and means a larger tax refund or smaller tax bill depending on your financial situation.
So if you have extra money, consider increasing your 401k contributions so you have more money for retirement.
#3. Invest In A Roth IRA
If your employer doesn’t offer a 401k, a good idea is to consider investing in a Roth IRA instead.
A Roth IRA is similar to a 401k since it gives you tax advantages on the money you invest.
But unlike a 401k plan, the money you contribute is after tax, meaning you don’t get a tax break on it.
However, your money does grow tax free.
This means when it comes time to withdraw the money, you don’t owe any tax on it.
This includes not only the money you contributed, but also the earnings.
Plus, you can withdraw any contributions you make before retirement age without any tax penalties.
If you have a decent amount of money left over, you could consider putting some towards your 401k and some towards a Roth IRA if you are covered by both.
#4. Build Your Emergency Fund
Another good thing to do with excess cash is building your emergency savings.
While many financial experts suggest you have between three and six months’ worth of expenses, I suggest you have anywhere from 6 months to 1 year.
The reason for this is if you lose your job, you might be out of work longer than you expect, or you might have to take a lower paying job.
By having extra money in your emergency fund, you have less stress and can focus on the more important things in life.
#5. Save For Other Money Goals
One of the best ways to use money you don’t need for paying bills is to save it for other financial goals.
Maybe you want to take an epic vacation or buy a new car in a few years.
You can start earmarking some of the money you have for these big purchases to make them more of a reality.
Just set up separate savings accounts for each of your goals so you always know how much money you have for them.
- Read now: Learn the pros and cons of sinking funds
#6. Invest In The Stock Market
If you want to get ahead financially, then you need to be investing in the stock market.
And here is an overlooked secret many people don’t realize.
It is more important how much you invest than it is what your return is.
This isn’t to say your investment return isn’t important because it is.
But it is critical to save as much as you can and as early as you can.
For example, let’s say you invest $15,000 and earn 5% annually on this money.
At the end of 25 years, you have over $50,000.
Now let’s say you invest $500 every year for 25 years and earn 8% annually.
You end up with close to $40,000.
So if you have the money, put it into the stock market and let it grow.
#7. Invest In Real Estate
If the stock market isn’t for you, or if you want to invest in other areas outside the stock market, look into real estate.
Now you can do this one of two ways.
First is to buy real estate investment trusts, or REITs, which trade on the stock market.
This allows you to invest in properties without the need of owning the real estate.
However, you don’t control what or where the properties are.
The other option is Arrived.
This service invests in residential real estate and you can pick and choose the homes you invest in.
It’s a great option to get started with.
You can click the link below to get started.
#8. Save For A House
If you want to buy a house in the future, now is a great time to be putting money away for this goal.
Having a sizeable down payment not only lowers your monthly mortgage cost, but it also helps you to avoid private mortgage insurance (PMI), and gets you the best interest rates.
As with saving for other goals, it is important that you use separate savings accounts for each goal so you always know how much money you have for each goal.
#9. Refinance Your Mortgage
If you already own a home, then you might want to look into refinancing.
This is especially true if your interest rate is 1% higher than current interest rates.
By refinancing to a lower interest rate, you will lower your monthly payments, freeing up even more money to put to use in other areas of your life.
But that isn’t the only benefit of refinancing.
Since you have excess money, you might want to refinance to a shorter term.
For example, if you have 25 years left on your 30 year mortgage, consider refinancing to a 15 or 20 year loan.
This will increase your monthly payment, but you will save thousands of dollars in interest charges.
#10. Pay Extra Towards Your Mortgage
Maybe you do the math and refinancing doesn’t make sense for you.
Either the difference in interest rates isn’t great enough or you don’t have that much longer until you pay your mortgage off.
In this case, you don’t have to settle for nothing.
Put extra principal towards your mortgage and you will pay it off sooner as a result.
Depending on how much more you pay each month will determine your new payoff date and how much money you save in interest charges.
And here is another option.
You can skip the actual refinance and pretend to refinance.
What I mean here is you can use an amortization schedule to see how much money you need to pay each month in order to reduce your term.
For example, let’s say you want to pretend to do a 15 year refinance.
You figure out your monthly payment based on your current balance paid back in 15 years and then each month, pay this amount.
The benefit here is you avoid closing costs and associated fees that come with actually refinancing your mortgage.
#11. Invest In Yourself
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.
Maybe you get more education, degrees, or certifications that will increase your desirability for getting a higher paying job.
- Read now: See why you are your greatest asset
Or maybe you forego the degree and just get the skills that will make you more marketable.
It doesn’t have to stop with your career either.
Maybe you spend money on a new hobby you’ve been wanting to try or you learn a new language, or just read more books.
Anything you can do to improve yourself is a great way to spend money.
#12. Give To Those In Need
In addition to using the money to improve yourself and your finances, you should also consider helping those in need.
Find a cause that you are passionate about and start giving to them every month.
If you don’t know of a cause you want to donate to, you can still give.
When buying coffee, pay for the order of the person behind you.
You can do this at fast food restaurants and the grocery store as well.
Or you could leave a sizeable tip for a server.
Maybe you pay off someone’s layaway balance around the holidays or give more to your church.
The point is, you don’t need to have a cause to give.
You can give until you find your cause and even keep giving in other ways in addition to your favorite cause.
#13. Start An Opportunity Fund
Another great way to use your money is just to save it.
You don’t need to have a specific goal right now for this money.
Just save it for the future as you never know what may come.
- Read now: Learn 17 benefits of saving money
Maybe you realize you no longer love your career and want to work for yourself.
This savings could help you make the transition easier.
Or you might vacation somewhere and realize you would love to own a place in that location.
At the end of the day, there is nothing wrong with having a large savings account that doesn’t have a goal tied to it at the moment.
Just make sure you are putting this money into a high-yield savings account.
Typically online banks are the places that pay a higher rate of interest, with credit unions coming in second.
Why do you want higher yields on your money?
The higher your yield the more interest you will earn on every dollar you have saved.
In other words, your money compounds faster, with the end result is you having more money at the end of the day.
#14. Review Your Insurance Policies
How do you pay your insurance premiums?
Do you pay them monthly?
If so, you should consider changing this up to semi-annual payments.
Most insurance companies charge you a fee for paying monthly.
And they give you a discount if you pay every six months.
So if you are paying more frequently, consider changing this up and putting some money into a dedicated savings account each month so you have cash to pay the bill when it comes due.
At the same time, review your deductible.
If your deductible is low, you can increase it.
This means if you have a claim, you will pay more money out of pocket.
The tradeoff is that your premium will be lower, saving you money.
Just make sure to put a little extra in your emergency fund to cover this increase in out of pocket cost.
#15. Save For Child’s College Education
The last thing you can do with surplus cash is to save for your child’s college education.
There are a number of ways to go about this as well.
You could start by saving in a 529 plan, which is something that most states offer and allows for tax-free growth if used properly.
Or you could open up a custodial account and start saving for this goal now.
Another option is a coverdell savings account.
They are similar to 529 plans but have differences that could make them more attractive depending on your tax situation.
You will have to decide which is the best option based on your financial life, but any one of them is better than nothing.
Making The Most Of These Ideas
These ideas are great, but don’t think you need to pick just one.
You can easily take the money you have and divide so you can follow more than one of these ideas.
For example, maybe you put extra money into your retirement accounts as well as your investment portfolio.
Or maybe you save for retirement and pay off debt.
Don’t think you only can do one.
But at the same time, and important thing not to do is spread yourself too thin.
You don’t want to pick 10 of these ideas and as a result only be putting $10 a month towards these goals.
The best strategy is to pick the few that are most important to you and focus on those.
Then when you achieve the goal, put your money towards other ideas on this list.
There are 15 things for what to do with excess cash.
You could save it, invest in yourself or others, pay off debt, put it into retirement savings, and more.
The key is to put the money to use so you can improve your financial situation now and in the future.
You never know when the excess money might go away, so making sure to put it to good use is critical.
- Read now: How much money should you have in your checking account
- Read now: Learn the good money habits you need to follow
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.