By: Dannie Phan | October 20th, 2020
Your money should be working hard for you. And how does money work hard? It grows for you. Money that is wisely invested should be growing so that you can use it in the future. If you’re keeping your extra money in your checking account, that money is growing substantially less than it could be and you will be tempted to spend it, because it’s so easily available. You work hard for your money and if you want that money to grow, then you need to learn to make it work for you. Once you start building up a way to save and invest your money you’ll be amazed by how quickly it grows.
What should I do with extra money?
Got some extra money lying around? Is there money sitting in your bank account at the end of each month? Not sure how to make it work for you? Don’t just spend it without thinking. A new car or expensive clothes might be tempting, but carefully considering how you spend your extra money and being in control of your personal finances can help you plan well for the future and have access to extra money when you really need it.
Perhaps you dream of owning your own house. Investing in real estate is a great idea and owning your own house is a great place to start. Or perhaps you would like the security of emergency savings or retirement savings? It’s important to be thinking about retirement and an ira (individual retirement account) is a great way to add to your retirement savings. Whatever your hopes and dreams for the future are, taking control of your spending and finances in the short term will set you up to achieve them.
None of us know what the future holds, but if the past is anything to go by, we can be fairly sure there are some unexpected things coming our way. If the coronavirus and COVID have taught us anything, it’s that we really can’t see into the future. That’s why the first two things you should do with extra money are to get rid of debt and start saving for the future.
Step 1: Get out of debt! Quick!
If you’re in debt, then instead of making your money work for you, your money is working for someone else. You need to make a plan to get out of debt as quickly as you can.
The sooner you start making your money grow, the better. Your money can’t start growing until it stops shrinking because of debt. Debt can take on many forms, so identify it and classify it as debt in your budget so that you can focus on paying it off quickly. Student loans, credit card debt, and car repayments are common types of debt that many people have. Set aside money each month to start chipping away at your debt and if it feels overwhelming see a professional like a financial adviser help you dig your way out. A lot of people have debt and it’s nothing to be ashamed of. Rather, be honest with yourself, see a financial planner, and start working on a plan to meet your long-term goals.
Step 2: Start saving
Now that you’ve taken control of your spending and eliminated your debt, you are ready to start saving. Work out your financial goals so that you know what you want to with your money. A financial adviser will be able to help you choose the best investment accounts to meet your needs and make sure you have enough money when you need it.
Having an emergency fund or savings account can help you and your family survive and even thrive through difficult times. A job loss, pandemic, medical emergency, or even the death of a loved one can put you into a financially dangerous position far quicker than most people imagine. Many people are forced to turn to their credit cards or go into debt when the tough times hit. Credit cards and quick debt are expensive and hard to pay back which means it’ll take you even longer to back on your feet, even once the emergency is over and you may be left paying of debt many years longer than you should.
If you have an emergency fund or savings account, you can easily dip into it to carry you through tough times. It’ll cost you nothing and as soon as life returns to normal, so will your life and your lifestyle and you can start topping the fund and your savings and investments again in no time at all.
An emergency fund or savings account should give you good growth on your money and be easy to access if you need it quickly. For this type of saving, you’ll typically take a slightly lower interest rate and level of risk, so that you can have access to your money quickly.
What if I don’t have any money?
For many people though, budgets are already tight. The idea of paying off debt and saving for the future sound wonderful, but how are you meant to do that when you’re barely scraping by each month? How do you get out of debt and save when you have no money?
It can be hard to start saving money and sometimes we think that there’s no point in saving or making smart money choices (investments) unless we have a lot of extra money. “One day,” we tell ourselves, “when I have lots of money. That’s when I’ll start saving. That’s when I’ll start being smart with my money.”
It turns out though, people who are smart with a lot of money were also smart when they had just a small amount of extra money. You don’t need to have a large lump sum saved up to start being smart with it. Even just putting aside a small amount of money each month, can add up to a substantial saving over a year.
There are basically two approaches to saving when you have no extra money. Either you spend less money or you make more money. Usually, a combination of these approaches is the most successful.
Step 1: Spend less, save more.
The first step to spending less money is to know what money you’re spending. Draw up a personal or family budget and track how you’ve been spending your money. Often, you think you’ve got it all under control, but when you take a closer look, you realize that you actually didn’t know how much you were spending.
Take a close look at the budget and be brutal. Are you spending more than you thought on groceries? Or perhaps you didn’t realize how much you’ve been eating out? There are lots of great ways to save money in your budget. Some items will need to be cut, but some can be substituted for a cheaper alternative. Coupons are a great way to save and Swagbucks is a great website to check out if you’re looking for ways to cut your expenses and even make some extra money. They have a bunch of coupons on their site, so you’ll be saving money on items you would have purchased anyway.
Step 2: Make more, save more
The other way to have money to save is to make more money. Sometimes we look at our budget and just can’t cut enough to be able to save a decent amount. There are loads of ways to make a little extra cash. You could take on another job or even find some freelance work that you can do in the evenings. There are websites that will pay you for taking surveys online or completing other quick jobs. I really like Swagbucks for this too. They have a variety of ways that you can earn points on their website and because it’s all in one place, you don’t need to go searching for ways to make money. Time really is money and not having to waste time looking for ways to boost your income means it’s a lot less stressful and you have more time to dedicate to tasks that actually make you money.
And lastly…Just keep swimming.
We all know what a healthy diet and lifestyle looks like and having a healthy financial life is no different. I quick fad diet won’t do you much good and neither will a financial juice fast. The trick with having healthy finances isn’t a lucky investment in the stock market. The trick is slow and steady and consistent. A small faithfulness, each day, over a long time adds up to far more than you imagine.
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