Introduction
Managing budget surplus money wisely will make a significant difference in your financial health. Instead of letting those extra funds sit idle, why not put them to work with some effective saving strategies?
Here’s how you can make the most of the money you have left over in your budget.
1. Build an Emergency Fund
One of the smartest ways to use leftover money is to build or bolster your emergency fund. Aim for three to six months’ worth of expenses to cushion yourself against unexpected financial setbacks. By regularly contributing to this fund, you’ll have peace of mind knowing you’re prepared for emergencies. Make sure to replenish this if you need to dip into it for some reason.
This money should be readily available to use when needed, liquid. Shop around to get a good interest rate for your money. Many big banks offer low annual percentage rate (APR) yields. Here are some banks that often provide top-level interest rates:
- Capital One: 4.25% (balances of $1 or more)
- ufbDirect: 5.15% (balances of $1 or more)
- CIT Bank Platinum Savings: 5.00% (balances of $5000 or more).
2. Pay Down High-Interest Debt
If you have high-interest debt, like credit card balances, consider using your extra funds to pay it down faster. Reducing this debt not only saves you money on interest but also improves your credit score. Credit reporting agencies like to see the utilization under 30%!
Prioritize debt repayment to alleviate financial stress and improve your long-term economic stability. Do you have a strategy to pay those off?
If not use our Budgeting Financial Blueprint to list your debts, with interest rates, and target the highest rate first. As you pay that one off, be strong, and put all that money paid toward the first card toward the next highest interest rate. Rinse and repeat! Watch how quickly you can eliminate your debt burden, reduce stress, and improve your life!
Another approach recommended by Wealth Factory is to divide the minimum payment amount by the balance due and pay the lowest one down first and again once that is paid off apply the amount paid to that card to the next highest one on the list.
3. Invest in Your Future
Investing your leftover money can help you grow your wealth over time. Consider contributing to retirement accounts like an IRA or 401(k) or investing in stocks, bonds, or mutual funds. Diversifying your investments can yield significant returns and help secure your financial future.
Be wary of tax considerations. For example: don’t contribute more to your 401k than your company matches. Instead, invest that extra into cash-producing assets as we discuss here, in depth. But generally speaking, the money is better invested in either a Roth IRA which grows tax-free, or a Whole Life/Index Universal Life Insurance Policy which also grows tax-free and is tax-free when taken out. You can also borrow against it to purchase other income-producing assets to keep your money working for you, instead of you working for money!
A 401k company match is a nice investment bonus, but when you retire, there are Required Minimum Distributions (RMDs) that can be painful from a tax perspective, since what you invested is a tax-deferred investment vehicle. You can borrow against a 401(k) plan as well, but it reduces the principal invested, so you are missing out on that growth while you repay the loan. However, a loan against an insurance policy does not impact the growth of the underlying asset.
3a. Invest in YOU
Investing in yourself can yield substantial returns. Use your extra money to take courses, attend workshops, or earn certifications that enhance your skills and career prospects. Investing in personal and professional development can lead to higher earning potential and greater job satisfaction. These expenses can also be a tax deduction if the training is related to your business.
NOTE: We will soon be adding a section for self-improvement. Check back often!
4. Save for Specific Goals
Use your extra money to fund specific savings goals, such as a vacation, a new car, home improvements, or retirement. Setting aside funds for these goals helps you avoid debt and ensures that you’re prepared when it’s time to buy. Ideally, you want to open a separate savings account for each goal to keep track of your progress, but if the bank is charging fees, find a new bank or consolidate to one account.
5. Contribute to a Health Savings Account (HSA)
If you have a high-deductible health plan, contributing to a Health Savings Account (HSA) can be a tax-efficient way to save for medical expenses. HSAs offer triple tax benefits—contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. In addition, in retirement, these funds become available for non-health-related expenses. However, when used for non-health-related expenses, that money is taxable, as it was put into the account pre-tax, but there is no penalty.
6. Consider Charitable Contributions
If you’re financially secure, consider using some of your leftover money to support charitable causes that matter to you. Not only does this help those in need, but it can also provide you with a sense of fulfillment and potentially offer tax benefits. One of the key concepts of the Law of Attraction and Abundance is ‘Abundance for All’. When you enter into this journey, make sure you are generous with others.
What you reap you will sow with your time, talent, and treasure.
7. Create a Fun Fund
Finally, don’t forget to reward yourself. Setting aside a portion of your extra money for leisure activities or hobbies can improve your quality of life and help maintain a balanced approach to budgeting. Whether it is for a weekend getaway or a new gadget, having a fun fund can keep you motivated to stick to your budget.
Summary
Effectively managing leftover money in your budget involves making strategic decisions that align with your financial goals. Whether you’re saving for emergencies, investing for the future, or enjoying some well-deserved leisure, these strategies can help you maximize your extra funds and achieve financial well-being.
By implementing these smart saving strategies, you’ll be well on your way to making the most of every dollar in your budget. Start today and watch your financial confidence grow!
