Have extra cash and wondering what to do with extra cash?
You’ve come to the right place!
This post is about 5 approaches on what to do with extra cash.
Let’s dive into the top 5 approaches on what to do with extra cash.
1. Emergency Fund
First and foremost, this is the fund you need to build before anything else. The reason for this is because the emergency fund is the first place you will dip into in the case of a sudden job loss, or other unexpected (large) expense. That’s why you want to make sure this fund is sufficient. The recommendation is around 3-6 months’ of living expenses. These expense can range from rent/mortgage, utilities, food, and other basic necessities. In the case we saw with the pandemic, you may want to pad your emergency fund with more. However, that is entirely up to your discretion and comfort levels with the ability to have income.
2. High-Interest Debt
Or, to be honest, debt in general. High-interest debt can include credit card balances, car loans, or others. Any debt in which you have required payments for, you want to make sure this is covered. If you have extra cash, this would be a great opportunity to pay some of that debt off. This can help you get to being debt-free sooner, and ultimately, pay less interest! All in all, a win-win!
3. Retirement Accounts
Saving for retirement should not be overlooked! These retirement accounts can range from 401(k), Roth IRA, and more! A 401(k) is typically an employer-sponsored account and would likely be a contribution directly from your paycheck. A Roth IRA is usually opened by the individual, so you have more control over how much is contributed and what those funds are invested in.
4. Sinking Funds
Saving for a car, a vacation, house, or a large purchase? This is a great opportunity to put more money towards one of your bigger purchases! Maybe it means you can get your car faster, or splurge on a better airplane seat if that’s what you desire. Whatever it may be, putting extra cash into one (or more) of your sinking funds would be a great way to put that money to use.
5. Investments (Bridge)
We’ve already covered retirement accounts, so these investment accounts are outside of the realm of retirement. The reason investments are also included is because these investing accounts offer more funding and withdrawal flexibility. The retirement investment accounts usually have limitations (withdrawal amount, time of funding/withdrawal, etc). That being said, putting money into investment accounts allows the money to grow over time, in case you don’t quite have an idea on where/how you want to use it. Or it can be used as a way to bridge you until you get to retirement, in the case you’d like to retire prior to the minimum retirement withdrawal age of 59.5.
To reiterate, the top 5 approaches on what to do with extra cash are:
- Emergency Fund
- High-Interest Debt
- Retirement Accounts
- Sinking Funds
- Investments (Bridge)
There you have it! Interested in learning more on what to do with extra cash? Check this post out for sinking fund examples!
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