What to do with extra cash? Top 10 ways to make money work for you
If you’ve found yourself with a bit of extra cash in your account lately, you might be wondering what the best move is. It’s not always easy to save money these days, what with rising costs and all. But hey, if you’re lucky enough to have a little surplus, it’s worth thinking about how to use it wisely. Here are ten smart ways to make your money work for you.
Think about a savings account
Your suggestion to deposit extra funds into a savings account is a smart financial move. Unlike a checking account, which primarily serves as a tool for managing daily transactions, a savings account allows your money to grow by earning interest. With interest rates improving, it’s an opportune moment to explore different banks or financial institutions to find the most competitive rates. However, it’s important to consider the terms of the account, as many savings accounts impose restrictions on the number of withdrawals you can make each month without incurring fees. Being mindful of these conditions can help you maximize the benefits of your savings while avoiding unnecessary costs.
Save for emergencies
Life has a way of surprising us with unexpected challenges, and having a well-prepared emergency fund can make all the difference. Whether it’s a sudden job loss, an urgent medical expense, or an appliance breakdown, this financial safety net ensures you’re ready to handle life’s curveballs without undue stress. Financial experts often suggest saving an amount equivalent to three to six months of living expenses to provide a solid cushion during tough times. Keeping this fund in the same bank as your checking account can make managing your finances seamless and convenient. However, it’s wise to store this money in an easy-access account, such as a high-yield savings account. This approach lets you earn interest while ensuring you can quickly withdraw the funds when a genuine emergency arises.
Tackle your debts
Carrying debt is a common challenge, and you’re certainly not alone in facing it. Whether it’s credit card balances, student loans, or a hefty mortgage, the weight of debt can feel overwhelming. Tackling these obligations not only provides financial relief but also frees up your resources for other goals. Since interest on debt can accumulate quickly and drain your finances, it’s a smart strategy to prioritize paying off high-interest debts first. Two popular methods for managing debt are the debt avalanche and the debt snowball approaches. The debt avalanche focuses on paying off debts with the highest interest rates first, minimizing the total interest paid over time. Meanwhile, the debt snowball emphasizes paying off the smallest balances first, giving you quicker wins and boosting motivation. Both methods can be effective, so choose one that aligns with your financial situation and personal preferences to help you regain control faster.
Save for something big
Maybe you’ve got something big in mind for the future, like a new car or even a house. Or perhaps you just want to have a chunk of change for something fun down the line. Whatever it is, planning ahead is key. If it’s a short-term goal, maybe just stick it in a savings account. For longer-term goals, you might want to think about investing to help your savings grow faster. It’s all about making your money work for you. Taking a few smart steps now can really set you up nicely for the future. And who doesn’t like the sound of that?
Think about investing the extra
Investing can seem intimidating at first, especially with its inherent ups and downs, but it’s undeniably one of the most effective ways to grow your wealth over time. The beauty of investing lies in its versatility—there’s a wide range of options available, allowing you to tailor your portfolio to suit your financial goals and risk tolerance. Whether you’re drawn to the stability of bonds, the growth potential of stocks, or the diversification of mutual funds and ETFs, there’s something for everyone. For those new to investing, starting with a clear understanding of your risk comfort level is essential. This ensures that your investment strategy aligns with your financial aspirations and gives you peace of mind as your money works harder for you. With the right approach and mindset, investing can become a powerful tool for building long-term financial security.
What type of investment should you make?
Investing your money can be tough, given the numerous options available. Each type of investment has its own risks and rewards, so understanding the basics can help you make an informed decision. Here’s a quick overview of some common investment choices:
Government Bonds and Securities
Government bonds and securities are like lending your money to the government, and in return, they pay you back with a bit of interest over time. They’re pretty steady and safe, kind of like putting your money in a reliable friend’s hands.
- Pros: Generally steady and low-risk.
- Cons: Lower returns compared to other options.
Stocks
Stocks are literal pieces that represent ownership in a company. When the company does well, your shares can grow in value, but if it doesn’t, your investment can go down, too.
- Pros: Historically offer more consistent long-term returns.
- Cons: It can be more volatile, akin to a rollercoaster ride.
Cryptocurrencies
Cryptocurrency investment involves buying digital currencies like Bitcoin or Ethereum. It’s high-risk and high-reward, with prices that can swing wildly in a short time.
- Pros: potential for significant returns.
- Cons: Highly volatile and risky, being relatively new compared to traditional investments.
Finding the perfect mix
Your age, risk tolerance, and financial goals all affect the best type of investment for you. Younger investors might handle more risk since they have more time to recover from losses. Some people can manage the volatility of stocks better than others, making risk tolerance a crucial consideration.
Additionally, your financial goals—whether you’re saving money for retirement, a house, or simply looking to grow your wealth—will play a significant role in shaping your investment strategy.
Investment Strategies
When investing, your approach should match your comfort with risk and your financial objectives. Here are two common approaches to consider:
All-in on Stocks
Suitable for those with high-risk tolerance and a long investment horizon.
Balanced Portfolio
A classic mix like 60% stocks and 40% bonds can provide a good balance between risk and return.
Max out your 401(k) match
If you haven’t been contributing to your 401(k), now’s the time to start, especially if your employer offers a match. A 401 (k) match is when your employer contributes a certain amount to your 401 (k) based on the amount you contribute. For example, if your employer matches 3% of your $50,000 salary, that’s an extra $1,500 a year! It’s free money for your retirement. If a 401(k) isn’t an option for you, don’t worry—there are plenty of other ways to save for the future.
Fund an IRA
If you don’t have a 401(k) or have already maxed out your contributions, consider opening an IRA. These accounts come with tax advantages and can be used to buy various investments. Traditional IRAs offer tax-deductible contributions, while Roth IRAs let you take out qualified distributions tax-free in retirement. You can establish an IRA with an online brokerage and start investing in diversified funds, which can help cushion against market ups and downs.
Save for your life goals
Retirement isn’t the only thing to think about. Take a moment to outline what you want your money to do for you. Maybe you’re setting money aside for a house down payment or starting a college fund for your children. For goals that are a few years away. Consider investing some of your savings to help it grow. For short-term goals, keep your money in a savings account where it’s safe and accessible.
Explore other investment options
Once you’ve got the basics covered, you might want to explore more exciting investment options. If you’re interested in individual stocks, research companies you believe in. Real estate is another option—consider investing in real estate investment trusts (REITs), which are companies that own income-producing real estate.
For those who want their investments to align with their values, look into sustainable ESG investments. And if you’re curious about alternative investments, maybe dip your toes into cryptocurrency. Just remember, these should only be a small part of your portfolio since they carry more risk.
Explore passive income opportunities
Passive income involves earning money on the side without putting in much effort. Here are a few ideas to get you started:
Rent out your house, car, or equipment
If you own a home, a car, or even some extra storage space, you can turn these into income-generating assets. For example, you can list your home on Airbnb and rent it out when you’re away or if you have a second property.
Got a car you don’t use all the time? Turo lets you rent it out to people who need a vehicle for a few days. You can even rent out your storage space using the Neighbor app. It’s a great way to make some money off of things you already own.
Micro-investing
Imagine getting paid to spend money. That’s the idea behind micro-investing apps like Acorns. These apps will round up your everyday purchases to the nearest dollar and invest the spare change. So, if you spend $10.50 on something, Acorns will round it up to $11 and invest the extra $0.50. It might not seem like a lot, but over time, with regular spending, it can really add up and grow into a nice little nest egg.
The bottom line
Exploring these passive income streams can help you build wealth over time without requiring constant effort. It’s all about setting things up so your money keeps working for you, even when you’re not actively working on it.
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FAQs
What is the best thing to do with your money?
The best thing to do with your money is to ensure it aligns with your financial goals. This might mean paying off high-interest debt, Save money for unexpected expenses, or investing in a variety of options to increase your wealth over time.
What is the smartest thing to do with money?
The smartest thing to do with money is to create a solid financial foundation. Focus on paying off debts, saving for emergencies, and investing in ways that match your risk tolerance and long-term goals.
How can I grow my money?
You can grow your money by investing in a mix of assets like stocks, bonds, and real estate. Start with safer options if you’re new to investing, and gradually diversify to include higher-risk investments for potentially higher returns.
How to invest as a beginner?
As a beginner, start with low-risk investments like index funds or ETFs, which spread out your risk across many companies. Consider using a robo-advisor for automated, easy-to-manage investments, and always educate yourself about the basics of investing.
What to do with my money in my 20s?
In your 20s, focus on paying off any high-interest debt and building an emergency fund. Start investing early, even if it’s just a tiny amount, to take advantage of compound interest over time.
