Here are 5 Ways to Make the Most of Extra Cash

By implementing these strategies, you can maximize the financial benefits of your extra paycheck.

PUBLISHED MAR 16, 2024

Cover Image Source: Unsplash | Photo by M Jahid

Best Ways to Use Your Extra Cash

Image Source: Unsplash|Photo by Engin Akyurt — Putting extra cash to use | Image Source: Unsplash | Photo by Engin Akyurt

While people always look forward to their monthly paychecks, earning something extra on top of it is an unexpected bonus for many. Consider this scenario, a person typically has just $200 left from their $7,000 monthly income after covering all expenses. But what should they do when they receive an additional $3,000 as a bonus? Such surprises offer excellent opportunities to bolster financial health, be it by settling outstanding bills or by investing for the future. Check out the best ways to make the most of the extra cash.

1. Bolster Your Emergency Fund

Keeping funds in an emergency fund can be a good source of future income. Image Source: Unsplash|Photo by Sasun Bughdaryan — Save for emergency fund | Image Source: Unsplash | Photo by Sasun Bughdaryan

Preparing for unforeseen events like health emergencies or career changes is essential. Yet, according to a Bankrate survey, only 44% of US adults have adequate funds in their emergency savings. If investing from your regular salary poses difficulties, allocating your bonus paycheck to fortify your emergency fund serves as a wise decision. This also ensures that you have a cushion to fall back on during times of financial strain.

2. Get Rid of Excessive Debt

Paying off debts can help you secure your future. Image Source: Unsplash|Photo by Roman Wimmers — Get out of debt | Image Source: Unsplash | Photo by Roman Wimmers

High-interest debts can strain your finances. Experts often recommend prioritizing the repayment of high-interest debts to save money in the long run. Consider this scenario: if you're earning a modest 3-5% interest rate on your savings account, while simultaneously grappling with debts that carry a hefty 20% interest rate, it's evident that the scales are tipped unfavorably. In such circumstances, utilizing your bonus paycheck to prioritize the repayment of high-interest debts can prove to be helpful.

3. Save for Future Expenses

The future is uncertain and so are the expenses. Image Source: Unsplash|Photo by Micheile Henderson — Image Source: Unsplash | Photo by Micheile Henderson

Planning for future expenses is an integral aspect of prudent financial management, as it allows individuals to anticipate and prepare for upcoming financial obligations. Among these expenses, insurance premiums and taxes are essential items that require careful consideration and proactive planning. By strategically allocating your bonus paycheck towards these future expenses, you can mitigate potential financial challenges down the road.

4. Boost Retirement Savings

Retirement savings can help you a lot when you are not earning. Image Source: Unsplash|Photo by Towfiqu Barbhuiya — Retirement savings can help you a lot when you are not earning. Image Source: Unsplash | Photo by Towfiqu Barbhuiya

A robust retirement corpus serves as a financial safety net, providing the means to sustain your desired lifestyle and cover essential expenses during your post-work years. By allocating a portion of your bonus paycheck towards increasing contributions to your retirement account, such as a 401(k) or Individual Retirement Account (IRA), you take proactive steps toward building a solid financial foundation for your future.

5. Stretch the Bonus Check

Saving your paychecks can also turn out to be great. Image Source: Unsplash|Photo by Sasun Bughdaryan — Image Source: Unsplash | Photo by Sasun Bughdaryan

Choosing not to invest or pay off debts with your extra paycheck is also a smart move, especially if you don't have immediate financial obligations to fulfill. Instead, you can opt to save the funds and extend their utility over time. One approach is to incorporate the extra amount into your monthly budget, allowing you to spread out its impact over multiple months. For instance, using the example of a $3,000 bonus, you could set aside $250 each month to supplement your regular income. Alternatively, you may decide to deposit the entire bonus into a high-yield savings account, where it can accrue interest and generate additional income.