4 Things You Should Do With Extra Money ASAP

by Connie Mei · 12 comments


According to a recent report by CareerBuilder, 78% of Americans who work full-time live paycheck to paycheck.

That number is staggering.

I know it’s tempting to splurge a little and spend on things you’ve never had the opportunity to before whenever you have extra money to spare at the end of the month, but consider investing the sum instead before all of it is gone.

Thinking about the long term is hard, especially when it comes to finances, but life does get easier the earlier you start laying the foundation for good financial habits. Whether you have $100 or $1000 to spare every month, investing extra funds wisely can have a significant impact on your future. Let’s take a look at four things you do with extra money every month:

Pay Off Your Debt

First and foremost, consider putting part or all of your extra income every month towards paying off your debt. Being in any kind of debt can definitely loom heavily over your life and finances. Instead of spending the extra cash, it’s smart to chip away at that mountain to become debt-free so you can focus more heavily on investing your money. You should start with your highest interest debt first and work your way down, though some people find more motivation to tackle their debt by focusing on paying the smaller debts first.

what to do with extra moneyPut It In Your Emergency Fund

Having an emergency fund is not just a smart idea, it’s a necessity. Life is unexpected and you never know what can happen. Having an emergency fund can help you in life’s hardest situations, such as a car accident or the loss of a job.

David’s Note: I know it’s hard to put money aside for a “what if”, but starting as soon as possible is really important if you’re not yet prepared for the unknown. You don’t want a little hiccup to turn into a life altering train wreak. Did you know that many of the homeless people you see on the streets use to have a decent lifestyle? A bad stroke of luck strung together without an emergency fund can quickly change your life. Don’t become another statistic.

Begin putting money toward an emergency fund, as any little bit helps. It’s ideal to have six months of expenses saved up just in case.

Max Out Your 401k

After you’ve paid off your debt and put money in your emergency fund, it’s now time to think about the future – which means retirement. While it’s still years or maybe decades away, saving for retirement as early as possible means you reap more rewards later. And that can start with a 401k. Surprisingly, many full-time workers are unaware that employers match up to a percentage of your contribution to the 401k. That is free money folks. If you haven’t already, maximum your 401k contribution to whatever your company is matching. If you have savings beyond that, you can maximum your contributions up to the yearly limit as set by the IRS.

Max Out a Roth IRA

A Roth IRA is a popular retirement savings account that allows your money to grow tax-free. You contribute to a Roth with after-tax funds for anyone making below the income limits ($119,500 for single filers and $186,000 for married couples currently). When you’re ready to withdraw at retirement, you do not pay taxes on these funds. Therefore, a Roth IRA makes the most sense for someone who expects their tax bracket to be higher in retirement. If you’re under the age of 50, the most you can contribute to a Roth IRA is $5,500 yearly for those who have earned income that equal or exceed that amount. This pretty much means that those who have earned income can put in just over $458 monthly to reap the most benefits.

If you have extra income at the end of every month, start with these four steps. It will set up a healthy financial foundation for you and your family. Then, going forward, you can start looking into investments and maybe even spending a bit on yourself.

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{ read the comments below or add one }

  • If a person has both extra money and lots of debt he should use the money to pay a part of his debt. That is a good investment for the future. If he has not debt, then saving the money is a good option.

  • You are right these are not the sexiest investment strategies but they work. I was demanded to put money in my jobs retirement fund and I am so glad that I did. With my bad spending habits in the past there would be no telling when I would of started. I would be smacking myself right now. Great tips.

    • David Ning says:

      It’s important to just take the plunge because time in the market is the most powerful force in investing. I’m happy to hear that you are building a good foundation for your retirement.

      Keep it up!

  • Usually you can only adjust your 401k contributions during open enrollment – which is coming up quickly for most companies. So people should give serious consideration to making those adjustments soon – before they miss the window.

    • David Ning says:

      Thanks for reminding those who are limited to adjusting their contribution levels only during open enrollment.

      And for those who are looking to kick it up a notch, may I suggest increasing the percentage of your wages that automatically goes into the 401k. Some systems will even let you automate this process, adding, say, a 1% increase once a year.

  • I’ve been doing the 52-week money challenge since forever. Week #1, stash $1; week #2, stash $2; week #3, $3… and so on. By week #52, you’ll have $1,378 put away. I typically “double down” and do it twice a year. Easy peasy!

  • freebird says:

    umm… if you have debt and if you don’t have an emergency fund or 401k, that’s not “Extra Money”. You’ve been eating your seed corn!

  • Agree. Maybe even put a small amount on an automatic savings plan (say, $50 per month to start out) to force yourself to save. Like you say, not having any savings is a very dangerous position to be in, especially when the inevitable emergency comes.

    • David Ning says:

      Absolutely Miguel.

      Start small, start big, start whatever but start somewhere. The hardest step is always to get going. Once you get the ball rolling, then the rest is much easier.

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