Most people with a stable income are divided into two categories: some save money, collecting it for a “rainy day,” and others invest it in order to increase it. Why is the first approach the most wrong? Money is a tool that must work, regardless of whether it will be a job to satisfy your desires and needs or an investment.

Of course, the use of money depends primarily on the amount. A couple of extra hundreds of dollars and tens of thousands have different uses. We have prepared for you a list of the best tips on what to do with extra money to make your funds work.

#1. Pay Off Debts

First, you need to close all loans and repay existing debts. Break the habit of borrowing money before you get paid, and try to plan your budget for the whole month so that there is no need to borrow. This is especially true for high-interest debt, paying off which you spend a lot of extra money on.

Of course, it’s okay to occasionally borrow a couple of hundred dollars if you need money now. There are services that connect with direct lenders, and they, in turn, provide small loans in a short time with the ability to repay the debt in two weeks. Payday loans or no credit check personal loans are available to people with poor credit scores and do not affect them in the future, as lenders do not submit reports to credit bureaus.

However, the habit of living in debt can lead to bad consequences. It is very difficult to get out of such a situation, but if you show stamina and fortitude, and refrain from making impulsive and thoughtless purchases, then you will be able to close at least part of your debts. Examples of debts that should be closed first if you have extra cash:

  • credit card debt;
  • high-interest debt with a large monthly payment;
  • medical debt;
  • private student loans;
  • other high-interest debt.

Many people who have received extra cash forget that it is necessary to repay their debts and immediately run to the shops. Of course, shopping is great, but you need to be able to prioritize.

#2. Create or Increase Your Emergency Fund

Nothing gives such peace and confidence in the future as a reliable financial cushion. Having an emergency fund or emergency savings account can give you restful sleep and confidence in the future. You will not be so afraid of the prospect of being unemployed or moving to another place. 

An emergency fund usually contains an amount equal to your expenses for 3-6 months. In this case, most often, only basic needs are taken into account.

Consultants can help you understand this area. Most banking organizations offer investment services in precious metals or mutual funds. You can find additional information on the website of the bank you are interested in.

#3. Increase Contributions to a 401(k), 403(b), or IRA

Maximizing your retirement plan with a surplus of personal funds is always a good idea. This is a reliable investment in your future, for which you will thank yourself more than once. Although you cannot fund a 401(k) from your retirement savings account, you can afford to have less money on hand by increasing the amount deducted from your paycheck.

With Roth IRA income limits or traditional IRA tax deductions, you can fund from your bank account. If your income is too high to contribute to a pre-tax IRA, you may be better off investing from a brokerage account rather than making a tax-free IRA contribution, as you risk paying tax twice.

However, this path is not the same for everyone. As with other investments, it makes sense to first seek help from a financial advisor or consult with the finance department at your company before making these kinds of decisions.

#4. Set Aside Money for your Goals

A retirement account and a retirement plan are good, but it’s worth living now. Depending on the amount of extra money, you should think about putting it aside for other, more relevant goals.

What exactly will it be – the decision is yours. And for the amount of extra money, of course. Perhaps it will be a down payment for your own housing or maybe a college fund for a child.

Some people save money to go on a trip around the world, and someone collects a tidy sum to start their own business.

#5. Consider Long-Term Investments

If you’ve already set up an emergency fund for yourself, sorted out your retirement accounts, and even set aside some of the excess cash for your long-term goals, then you might want to consider long-term investments. 

Money must work to multiply. And while investing isn’t for everyone, more and more Americans are investing money every year to reap long-term dividends.

Stocks and Bonds

Stock market. Perhaps the most popular way of investing is the first thing that comes to mind for anyone who wants to become an investor. A bond is a loan you make to a government, agency, or company that is repaid with interest, as opposed to a stock, which provides you with a portion of ownership in a certain company. 

The value of stocks on the stock market must increase for investors to profit. And you’ll lose money if it drops. Bonds frequently pay interest until the payment due date.

Exchange-Traded Funds (ETFs) and Mutual Funds

Mutual funds and ETFs provide a portfolio of securities (like stocks or bonds) under a single investment. You might combine many of them to make an investment portfolio or purchase an all-in-one fund, an accessible choice for diversification. Stocks, bonds, and other investments make up a target date fund’s asset mix, automatically becoming more conservative as the fund gets closer to its target retirement date and beyond. But keep in mind that the invested principle is not secured.

#7. Invest in Rental Properties

If you have a fairly large amount of extra money but investing in stocks and bonds is not for you, buying real estate or land can be a great solution.

Of course, this option is suitable if you have already paid off your debts, made an emergency fund, live in your own home, and are looking for ways to earn money with your money and reach new financial goals.

Real estate is a huge opportunity to earn money if you choose the right place to buy a plot and use this asset wisely. Buying a building plot or a finished building is a great way to make money work. You can rent out premises for business or residence and make good money from it.

Moreover, the price of real estate is constantly rising, and in most cases, you can easily sell it later. This means that it is also a reliable way to invest money.

#8. Start a Business

Investing in your own business is far from the most obvious option since not all people want or can run a business. Not everyone is given it, and not everyone is interested in it.

However, if you have been dreaming of your own business for a long time and you have some extra cash, then this is a good idea of what to do with money.

The amount of money you spend on starting your own business varies greatly depending on what you plan to do. You can go into home baking and sell it online, or maybe you want to open an entire restaurant.

In any case, if you have a dream and don’t have enough free money for a restaurant yet, it still makes sense to start small. Gradually, if you do everything right, your income will grow, and you will be able to develop your business further.

#9. Invest in Someone Else’s Business

If you know for sure that the business is not for you but still want to invest in the business, consider investing in someone else’s business.

Maybe one of your friends or family members is doing something unique and needs financial help to develop it.

Or you can seek advice and receive a list of small private businesses that need investment and are willing to share their income with you. If you can find the best place to put money, it might create passive income.

However, if you are in doubt about opening something of your own or investing in someone else’s business, it is better to open your own business. It will be more profitable and later easier since you will be the owner and will be able to fully dispose of everything.

#10. Treat Yourself

And last on the list of things to do with money, if you have extra cash, but not the last in value: treat yourself.

If you’ve paid off your credit card debt, have enough money to pay off your mortgage payment, and still have saved money, you can invest in your health.

Unfortunately, the human body can fail at any time. No one is immune from such situations. You can only take measures that contribute to your health. For example, do not save on quality food; buy a gym membership. Do not neglect physical activity. A good, balanced diet and sports will give you excellent health and excellent well-being.

Another good way to invest a day without the risk of losing it is to invest in your education. Courses, training sessions, possibly a foreign language tutor. Knowledge is never redundant.

But if you don’t have extra cash in savings or if you want something short-term, this is also a great opportunity to please yourself. Travel, shopping, equestrianism, or the first violin lesson. If you don’t know at all what to do with extra money and there are not so many of them, treat yourself.