Have you ever thought about what to do with extra money? Neither did I.
This question isn’t very different from winning millions in the lottery. What are you going to do with that money?
We know one fact. If you don’t know how to spend it, you will waste it. There are too many distractions in the world, and everyone tries to convince you why their products are valuable.
If you don’t know what you want, you don’t have extra money. You simply don’t have a goal, otherwise, you’d invest it somewhere.
Imagine if someone gave you $5K as a kid. That sounds like a lot of money. But you never thought about what to do with it, not even developed your financial intelligence. You’re going to waste that money in the first distraction.
This is the same. Later in life, you’re going to need more money, and you’ll regret having spent it stupidly.
But don’t worry. Here, you’ll learn how to make the right decision, even if you don’t have any goals.
- What to Do With Extra Money?
- Do You Really Have Extra Money?
- 4 Foolproof Ways To Use Extra Money Wisely
- 5 Fun (and Smart) Ways to Spend Extra Money
- Closing Thoughts
What to Do With Extra Money?
Believe it or not, not everybody cares about being rich. It may be the most popular goal, but there are many others:
- Getting out of debt: You can use the extra money to pay off your loans. And to make sure you get the most for your money, use methods such as the debt avalanche/snowball after settling your debt.
- Achieve financial comfort: Would you like to make more money joyfully? You can make money and work less by investing in passive income streams. As an employee, you can improve your skills to get work done faster and at a higher quality.
- Upgrade your lifestyle: Would you like to settle at a certain level after increasing your income? You can create multiple sources of passive income to fund your family’s living costs. Or you can earn millions and live off your interest.
- Create stability: Are you more concerned with protecting your fortune? You want to contribute for retirement, grow your savings account, and lend the money you don’t use (low-risk bonds)
- Improve your credit score: You don’t mind financing big purchases, but you neither want to pay an unfair amount. Or maybe you want to qualify for a high-score credit card. In any case, you can spend your extra money to boost your credit score.
- No goal: When you don’t know what to do with it, it’s smart to invest it in yourself, whether it’s knowledge, skills, or your health.
There are better ways to spend extra money rather than wasting it on lottery and casinos.
Do You Really Have Extra Money?
If you earn extra money, should you save it for later, or do you have the right to spend it on anything?
The real question is: do you have extra money? It’s not as simple as having more dollars in your bank account.
I don’t know what your goals are, but there are certain standards everybody should follow. And if you do, they’re going to make your life so much easier.
There’s no such thing as “extra money” as long as you meet any of the following:
#1 You owe money
I get it. You’re paying everything on time, so why should you increase your payments? Because lending costs you money.
Assuming you pay back your debt in full, you’ll have lost money. But if you pay it off fast, you might save something. Dedicate all your extra money to pay back your college tuition, insurance, car, and mortgage.
If you plan to lend in the future, it’s also wise to save for your next loan. If you make a bigger down payment, your interest rates decrease.
You may think you have extra money, but your lender may not agree.
#2 You have a small emergency fund
I don’t know a single month where I paid exactly what we projected. There are always variable costs and emergencies. You spend more than you think you will.
With that in mind, why don’t you accept that fact and save more instead? Do it so you can pay in time.
The credit bureaus don’t care if you owe $1000 but only paid $995. That will appear on your report as a missed payment, which will burden your score for seven years.
You don’t want that.
Also, the emergency fund protects you when your income streams stop working. We don’t want to think about it, but it’s a possibility. And if it happens, how will you pay for your expenses?
It’s ideal that you have enough saved up to cover 6-12 months of living expenses, including emergencies. And your familiars will want some of that money too.
#3 You have a single income stream
Emergency funds are big enough to keep you busy for a while. But instead of preventing emergencies, why not anticipate them?
If you only have one income stream, you will have to use your emergency fund many times. Which isn’t very safe.
Now that you have extra money, invest it in an additional income stream, which could be a business or another job.
It’s not about getting rich, but about having a plan B to generate income.
#4 You haven’t optimized your business
If you just started growing your business, there’s no point in wasting extra money. You should instead reinvest as much as possible.
The problem here is, if you invest back, you’re going to make more extra money. Your problem isn’t making money, but knowing how to spend it.
If you don’t know what to do with it, reinvesting allows you to delay that decision. You have a few months to decide, while your money is making more.
If you’re deciding between upgrading your business and starting a new one, choose the first.
#5 You don’t have, at least, $5K-$10K in net worth
It may sound contradictory to make more money when you don’t need it. But for how long?
Keep that money in your account for a few weeks and see what happens. Your brain will find a way to justify another purchase.
How many times have you decided overnight to buy something? Wouldn’t it be great if you already had the money? You don’t need to wait for months until you earn enough.
This can also be a problem for impulsive buyers. Even if you have the funds to buy immediately, give yourself a few days to think about it. You don’t want to waste your money.
#6 You haven’t maxed out your retirement accounts
It’s dumb not to take advantage of free money when it’s so hard to make. For example:
- You can invest 6,000 after-tax dollars per year in a Roth IRA. And because of compound interest, you end with a lot of tax-free money
- You can invest ~18,000 pre-tax dollars per year in a 401K, allowing you to compound money faster
- Most employers match your 401K contributions, so if you put 15,000, they contribute another $15K that year
If you add up everything, you can’t spend more than ~$25K per year on retirement. If you haven’t done that yet, do it. And if you already maxed out, then save another $25K to invest as soon as the next year starts. It will help you avoid taxes on retirement.
#7 You don’t have security
How do you protect your wealth, your assets, and your family? It’s not healthy to live life worried about your money.
It may look like a waste of money. But it’s worth paying for insurance plans to get that peace of mind. If you don’t have any, you could lose your assets anytime.
If you run a business, the risks are real. You may lose your inventory, or a customer decides to sue you, or you can’t pay your business loan.
Losing your business is one thing. But why does that need to affect your credit score or your personal assets? Get an LLC instead.
If you prepare for the worst, life feels much lighter.
4 Foolproof Ways To Use Extra Money Wisely
Look if you meet these criteria and see what you have left. That is your actual extra money. And the smartest way to use it is to make more money with it.
(If you don’t like this answer, the next section will show you five FUN ways to spend extra money without wasting it.)
If you have some money left by this point, here’s what to do with it:
#1 Invest in yourself
Money may lose value over time, but you don’t.
- Learn new skills to be more valuable at work
- Learn more about personal finance or your career
- Invest in tools to help you organize and be more productive
- Buy courses or pay someone to teach you personally
It’s a smart way to spend money because it improves all the areas of your life. As you become more efficient, you can achieve the same results in less time (which is the most valuable resource).
It’s never a wrong decision to invest in yourself. It may look like a cost today, but it always pays off.
#2 Promote yourself
Here’s another “currency” that almost never devalues: Social capital. The more people know you, the easier it is to get opportunities or share your ideas. And when living in society, you can’t succeed without the help of other people.
And to get that help, you need to help them first. So take the time to build relationships with others. You may need it later.
First, you need to gain awareness. If you’re a professional, you can advertise your services online. You can go to networking events. Also, join online groups with like-minded people.
Later, you want those people to take some action. It could be subscribing/following you on social media, giving you their email, or filling up a short survey. You can now get feedback and know what they want.
You then want to qualify those people before you ever ask for a cent. For example, people may not want your free ebook, but they may like to have a 30-min consulting call with you.
That’s a sales funnel in short. How you monetize (if you ever want to) is up to you. What matters is that you can easily succeed at any project because of the large contact list you have.
If you had a million friends who don’t know each other, how easy would it be to get paid 1 cent from each? That’s $10K. The power of social capital.
But nobody has just one friend. People may be subscribed to HUNDREDS of email lists. That’s why you have to be helpful enough to build that reputation.
#3 Invest in a business
You could really put money on any make-money-online idea. But no matter how much you earn, it’s a bad idea:
- Competition: If anybody can make money easily, the model will stop working or get saturated
- Control: If you use someone else’s means to make money, that someone has full control of your money
- Marketing: If you leverage someone else’s contacts, you’re not building your own customer base (back to the control problem)
That’s why you should start a real business instead. It may take longer, but it will last as long as you’re the CEO.
If you don’t know where to start, you can use the extra money to learn about business. But before you buy another $2,000 course, learn what businesses there are and which ones you like. Every model works, but you’re not going to commit if you don’t enjoy the process.
Talk to people and watch some videos to find out.
As for the business itself, find the minimum viable way to make it profitable. If you’re starting (or make less than $10K per month in profit), you don’t need to outsource anybody. You don’t need to pay for UX design, CRM, and other complex tools. Keep it simple.
Also, it’s too tempting to do “business stuff,” such as printing cards/flyers, posting on social media, or running ad campaigns. Focus on your product, and forget everything else until you get the first sales. Those are distractions.
#4 Lend your money
If you’re sure you’re not going to spend it, then give it to someone (trustworthy) who will. Next year, when you have more expenses, you can claim back your money and receive interest on top.
Lending won’t make you rich. It’s one of the slowest and safest ways to invest money. But if there’s no other option, lend. And when lending millions of dollars, the interest you earn may be enough to pay for your living costs (financial freedom!).
“But where do I find reliable borrowers?”
The easiest way: invest in (US Treasury or municipal) bonds. It means you lend the Government money, which will repay with interest after a few years. Some bonds are protected against inflation and are tax-exempt.
For other alternatives, you can learn more about the types of investments here.
5 Fun (and Smart) Ways to Spend Extra Money
You didn’t click on this article to get some generic advice, such as “invest in yourself” or “reinvest back in the business.” That may make a difference in the future, but it doesn’t do anything in the present.
I like to see an immediate impact when I spend money. And the easiest way to do it is materialism. If you buy a car, a house, or travel to another country, you can immediately feel the experience. Money feels like a meaningful tool.
But if you put the same money in an index fund, you don’t see the money you’ve reinvested until years later. Money feels like a meaningless number.
That doesn’t mean you have to waste it in order to see that impact. The following five ideas make an instant change in your life and offer great value for the price.
#1 Upgrade your lifestyle
What’s the optimal kind of life that will make you happy? For most people, that’s less than $90K per year. Maybe you see that as too low, but if you tried to spend more, you’d find it doesn’t make any difference. You can get the perfect life for $60K-$70K per year, excluding one-time purchases.
Why not more?
Let’s say you buy a house and a car in a nice neighborhood. That’s a huge difference if you’ve been renting a room and living on ramen noodles. It will certainly increase your productivity and happiness.
But lifestyle expenses are liabilities, not investments. It’s not only about affording a house or car. After you buy, they will keep draining your money and time (maintenance costs). You’ll also be worried about not losing them.
And because you paid for it, you want to spend time at home or driving your car, which distracts you from earning more money. That’s what happens when you go beyond ~$90K (aka the extravagant lifestyle).
Can you believe it? Most tech CEOs were still living in low-cost flats while making eight-figures.
The advice is, get everything you think you’ll need to be happy. Once you have that, try to earn more while spending as little as possible. It’s not frugal because you already have everything you want. It’s called minimalism.
#2 Hire people to save time
What’s the point of having extra money when you can’t enjoy it? You can create more time by delegating most low-income tasks. Because you have extra cash, you can afford that.
Do you want to have an extra 3-4 hours per day?
- Hire a chef to cook for you ($10-$30 per serving). If they charge per hour, ask them to prepare most of your meals for the week
- Use supermarket delivery services. Most are free if you buy over a certain amount
- Hire a cleaner for $20-$40 per hour
- Hire a personal trainer to monitor your workouts and personalize your diet plan ($30-$60 per hour)
- Hire someone to do your taxes and accounting
- Hire VA assistants to oversee your online business
If you’re making over $10,000 per month in profit, you will get a positive return the first month you apply these changes (assuming you hire the right people). And once you have more free time, you have more freedom:
- Work on your high paying projects ($100+ per hour)
- Live a fun life (friends, traveling, hobbies)
There’s another type of person you can hire. And although it requires some of your time, it saves you a lot more in the future.
#3 Invest in learning skills
Now that you have money and time, you have the freedom to learn everything you’ve always been curious about. And as you improve your skills, it’s more fun to practice them. It could be sports, music, even technology (e.g., coding).
But learning takes time. Unless you have a lot of experience, you could waste months on trial and error, or worse: stuck on the same spot.
A mentor makes sure that doesn’t happen. It’s a person who guides you through the process personally until you reach your goal.
These consultants charge hourly, although you can get them for a one-time price. If you’re interested in a skill, you may find a course on that niche, where the instructor offers weekly calls to answer questions. They also answer your messages within 24h.
Due to all this support, you learn faster, which also boosts your motivation. Instead of wasting years, you complete the process within weeks. You can now enjoy your new skill and use it for your own projects. Or learn another one.
A good program won’t cost more than $2,000.
#4 Try riskier ideas
You now have extra money with no idea where to spend it. That means that if you lost it, it wouldn’t matter much.
Well, that makes it the perfect time to try other types of investments. It’s worth increasing the risk to get a better reward, especially when you don’t have much to lose.
- Trading company stocks and cryptocurrencies. With good timing, you could 10X your amount within a week, provided that you do your research correctly
- Start with credit card churning. You open more credit lines to boost your cashback rewards, get perks, and welcome gifts
- You can allocate some of those funds in legal High Yield Investment Programs (HYIPs) as long as you protect yourself from HYIP scams
- You can trade options. You agree to buy or sell in the future for the current price of a stock/coin (for a fee). For example, if you buy a call option (buy) and the asset rises in value, you can still buy it for cheap
Or you can blow it all on a lottery. See which one gets you further.
#5 Plan some fun vacations
Did you earn more money than expected? What a problem.
You can celebrate your accomplishment by putting the extra money on some cool vacations.
- Travel to a place you never visited before (and bring your family/friends with you)
- Buy tickets for a concert or event
- Go to a hotel, an amusement park, or some popular restaurant
- Go on a cruise vacation for a week
- When traveling join a guided group to visit unique natural/cultural areas
- Try something you never did before. Here’s a list of things to try, at least, once in a lifetime
You decide how to plan your vacations. But don’t feel like you need to follow a rigid plan. You can adapt it however you like.
And remember: be creative and stay away from tourist traps!
Congrats on the extra money. But how long will it last?
If you don’t know how to spend it, someone is going to tell you how to do it. And it may not be the way you want. In such a distracting world, you have to have clear goals or that cash will disappear on a whim.
That’s why we’ve shared these ideas. You have to keep investing to protect your financial comfort when you don’t have money: passive income, index funds, skills.