How to Spend Money (Wisely)
In this article I am going to discuss my best suggestions for how to spend money in smart ways! Learn 15 awesome tips for how to spend money wisely to use it to your best advantage!
With these 15 fun tips, you can get great ideas for what to do with extra money this year!
Tip: Save the image above to Pinterest so that you can easily refer to this article on how to spend money later!
Should You Use Extra Money to Pay off Debt?
Before we talk more generally about how to spend money, I want to answer this question: Should you use extra money (also known as found money or a windfall) to get out of debt?
The short answer to this question is generally Yes!
The longer answer is also Yes! 🙂 That is, the answer is yes as long as you have at least a small buffer between you and Mr. Murphy. If you do not have a starter emergency fund of at least $1,000 (and you might want to up that to one month’ s worth of living expenses, depending on the stability of your financial situation and your own need for financial security), then create a starter emergency fund first. And then start attacking your debt and get it out of your life as quickly as possible!
But if you do use your extra money or found money to pay off debt, then also do the things that you need to and make the changes that you need to make in your life to not fall back into the trap of consumer debt!
Being debt free is an amazing way to live your life, and it has so many benefits. Some of the more tangible benefits of being debt free include being able to free up money for other financial goals like saving (more) for retirement and being able to have more money available to pay off your mortgage early so that you can save literally tens of thousands or even hundreds of thousands of dollars during your working life that you can use for other things.
And some of the less tangible blessings of paying off your debt include having peace of mind and the satisfaction that comes in knowing that your money is your own to use as you see fit; it’s not all controlled by someone else.
Paying off your debt and becoming debt free puts you in a wonderful place of strength financially and is an important part of overall financial freedom!
Check out this must-read article to learn how to get and stay out of debt!
What Is the Best Thing to Do with Extra Money?
Answering the question “What is the best thing to do with extra money?” can seem kind of tricky. As I note below in this article, there are many good and even great ways to spend money.
But if you have high-interest debt like credit card debt, probably the very best thing to do with your money, after you pay for the basic necessities, of course, is to pay off that debt.
Becoming debt free is one of the very best things you can do for your own financial well-being and long-term success! It is very difficult to build wealth and reach financial independence without being debt free, so definitely make this a goal and work toward it as quickly as possible!
Once you are debt free, start to save more of your hard-earned money so that you can begin to work toward your other awesome financial goals! Find ideas for how to spend your money wisely below!
Tired of tiny interest rates on your savings?
Are you tired of tiny interest rates? Do you want a solid bank with a long history (one that has been around for over 100 years) who is focused on their customers and not just their bottom line?
Then you should check out CIT Bank. We love our CIT Bank savings account, which offers the highest savings rate that we know of. With the CIT Bank Savings Builder, you can earn up to 1.7% on your savings account (which is really good in today’s market)!
15 Best Ideas for How to Spend Money (in Smart Ways)
OK, now with some of those other related questions out of the way first, here are some of my best ideas for how to spend money in good ways.
1. Build a starter emergency fund.
As I mentioned briefly above, one of the best ways that you can use your money is to create an emergency fund. If you do not already have a starter emergency fund of at least $1,000 or up to one month’s worth of expenses, then start there.
Put your money for your emergency fund in a separate savings account (I like our CIT Bank savings account because they offer an awesome [for these days, anyway :)] savings rate) earmarked for emergencies only, and then don’t touch it unless you have an emergency! Learn what an emergency fund should be used for here.
2. Stock your pantry and buy extra of other essential home storage items.
If there is one thing that the recent worldwide pandemic has taught me, it is that even if you have all the money in the world, it will not do you any good if there is no food available at the store to buy. You can’t eat money!
So once you have a starter emergency fund, or maybe even before you fund your starter emergency fund, consider setting money aside to stock your pantry, cupboards, storage room, and so on with shelf-stable foods and other essentials like toilet paper, laundry detergent and dish soap, body soap and shampoo, and other similar items.
3. Pay down credit card and other nonmortgage debt.
Another great tip for smart ways to spend money you have is to use it to pay off debt.
If your nonmortgage debt is less than the amount of money you have to spend, awesome! Pay it all off, and free yourself from that burden!
If you do not have enough money readily available to pay off all of your nonmortgage debt at once, then pay off the debt with the highest interest rates first, and then pay off your debts with lower interest rates once you tackle the higher interest rate debts.
Or else begin and follow a debt snowball plan to wipe out all of your debt as quickly as possible! With the debt snowball, you pay your lowest debts off first, and you work your way up to your larger debts (like your vehicles and student loan debt), until you eventually get everything paid off.
This is the method we used to get completely debt free (including paying off the mortgage early! woot! :D), and I highly recommend the snowball method to help you get and stay motivated to pay off your debt!
4. Finish funding your emergency savings.
If (and when!) you have enough money to do so, then fully fund an emergency fund with at least three months’ worth of expenses saved in it or, ideally if you can, six months’ worth of expenses saved.
And then save additional money each month to finish funding your emergency savings account until it is fully funded with again, if possible, six months’ worth of expenses (but at the very least three months’ worth of expenses).
5. Invest the money for (an amazing!) retirement.
Another great option for how to spend money wisely is to put the money toward your retirement savings.
If you don’t have one set up already, you should open a Roth IRA and begin putting money in it each month to save toward your retirement. As of 2019, you can save up to $6,000 in your Roth IRA.
So just for fun, let’s say you did that. If you are 32 years old, for example, and you had $6,000 available to you to spend or use in other ways and you put it all in your Roth IRA, And then let’s say that you worked till the (now recommended) age of 67.
And let’s also say that you invested the money in good, solid growth stock mutual funds and were able to earn the 30-year historical average of 12 percent on that investment. You would have $316,797! Pretty awesome, right? I would take $6,000 and turn it into $316,000 any day. 🙂
If you don’t have a Roth IRA yet, sign up for the cheat sheet below to get simple instructions for how to open a Roth IRA in 10 minutes or less!
6. Invest the money in an educational savings account for your children’s college educations.
If you have children, one of the best things you can ever do for them is to help them have a debt-free college education. (It is possible, and even very doable—I promise! Learn how to save for your children’s college educations.)
Don’t let them saddle themselves with thousands of dollars of student loan debt; just don’t! You likely had student loan debt yourself, and I bet you hated it! I bet you couldn’t wait to get rid of it! So save your children from having to go through that experience by helping to ensure that they pay for their college education with cash.
They will thank you profusely for helping to set them up for financial success in life by not having to start out their adult life shackled by student loan debt—I promise.
7. Use the money for a large purchase that you need to make (with cash!).
If your washer and dryer need to be replaced, now might be a good time. If your car is on its last leg, buy a new (to you! not brand new!) car with cash. If you have been wanting to buy a nice piano for your children to put all of those many hours of practice to use on, by all means go for it.
8. Use the money you have available to spend to pay for home improvements.
If you are nonmortgage debt free or if you have home improvements that really need to be made before they become an emergency, then using your money on home-improvement projects is a great idea!
We don’t normally get much of a tax refund (because we don’t like giving the government an interest-free loan for the year when we have so many financial goals of our own!), but we are getting a tax return this year, and because we are debt free (including the mortgage!) and are already saving for our kids’ college educations, we are going to use some of the money for some important home improvements. Yay!
9. Use the money to pay down your mortgage!
If you have an adequate emergency fund (of three to six months’ worth of expenses), you are out of all nonmortgage debt, and you are saving the recommended 10 to 15 percent (ideally 15 percent) of your income each month toward retirement, then you are a financial rock star! Congratulations to you!
In that case, a great way to spend extra money you have available is to use the money toward paying off your mortgage. My firm belief is that one of the best things that you can do for your own family’s financial well-being, financial security, and ultimate financial freedom is to pay off your mortgage as soon as you can. Once you have paid off your mortgage, no one can take your home from you if you have a financial setback such as a death of a spouse, a major illness, or the loss of a job.
And once you pay off your mortgage, you can invest the money in your own wealth instead of the bank’s! If you will pay off your mortgage as quickly as you can and then pay yourself a mortgage payment every month (as we have started doing since we paid off our mortgage a couple of years ago! #debtfreeforlife), you can then invest that money in good growth stock mutual funds in order to buy a more expensive house with cash in five or more years (which is our plan) or for your long-term financial security and wealth.
Check out these related articles!
10. Put your extra money toward a larger down payment to purchase your future home.
Another great option for a smart way to spend money is to put the money toward your down payment for the future house purchase you are saving money toward. By saving up a larger down payment, your monthly mortgage payment can be smaller. (I know it is extreme, but you might even consider the 100% down plan! That’s our plan for our next home purchase! #100percent down :))
11. Start savings accounts for larger purchases and expenses (sinking funds).
Another great idea for how to spend money wisely is to open individual savings accounts (these are all savings accounts that we have and regularly fund and use) for large purchases and expenses such as car maintenance and repairs, future (cash!) car purchases, home maintenance and repairs, annual life insurance premiums, family vacations, Christmas, birthdays and other gift giving, appliance and furniture purchases and repairs, and miscellaneous short-term savings.
These types of funds are often referred to as sinking funds, and they are a fantastic part of your overall financial success plan so that you can avoid going into debt in these and other areas.
Pro tip: If you are looking for a good place to save your money (with higher interest rates!), then you should check out CIT Bank. We love our CIT Bank savings account, which offers the highest savings rate that we know of. With the CIT Bank Savings Builder, you can earn up to 1.7% on your savings account (which is really good in today’s market)!
12. Use the money to continue your education.
If you are in a position where you would benefit from additional education to further your career (or just to further your own interests), then consider taking some college classes or completing a certification or other job training program.
One of the best investments you will ever make is in your own education if it helps you to be able to increase your income. And even if you take classes just for fun, additional knowledge is always a worthwhile thing.
13. Start a side hustle or small business.
If you have been wanting to start a side hustle (learn how!) or small business on the side, this could be the perfect opportunity to do it!
I would not recommend that you go into debt to start a side hustle or small business, but if you can do it for cash and have done the research to show it is a good fit and a viable (profitable) option for you, then go for it! Discover 19 awesome side hustles that you can do from home (or anywhere)!
My favorite side hustle is this blog, because it allows me to work from home on a flexible schedule, and it is a great way to earn extra money! If you want a fun way to earn some extra money (from the comfort of your own home, in your pajamas if you want!), then why not start your own blog today?! I am able to make $1,500 to $2,000 a month blogging part time (on top of my full-time job and raising 3 young kiddos), and I know a ton of bloggers who make even a lot more than that!
Check out these related articles:
Perhaps you haven’t considered starting a side hustle and should! If your day job lends itself to freelance or consulting work, for example, then starting a business on the side could be a great way to further use your skills, expand your professional network, and earn extra income to reach your financial goals—like paying off debt or purchasing a home—more quickly.
14. Donate the money to one or more of your favorite charities or local churches!
If you have local charitable causes that you love to support or one or more churches that you want to bless, then look at the option of donating some money to one of these worthwhile and likely very much in need causes.
You can do a lot of good in your community by giving money to charitable organizations and churches, that they can then use to help others in need or accomplish other good works.
15. Go have some (debt-free, guilt-free) fun!
Whether or not you follow any of the suggestions above on smart ways for how to spend money, if you use some or all of the money you have available to spend for some debt-free fun, you will still be ahead of the game (because you will not have gone farther into debt :))!
You could use the money to buy a new TV, a new smartphone, or a nicer (paid-for, please!) car, or you could even go on an epic trip, like my coworker is (he and his wife are going to China!). You could purchase bikes for your whole family (can you say “tandem”? :)). You could pay for an awesome backpacking trip or go to Disney World or take a family cruise.
If you love to save money when you travel like we do, read this article with 5 awesome ways that we save money by using Airbnb! And if you haven’t tried Airbnb yet, you need to! They are such a great way to save money while you travel! Sign up here to receive $55 off your first Airbnb rental!
Final Thoughts on How to Spend Money Wisely
There are many great options for how to spend money wisely, but these 15 suggestions are some of the best ways to spend your money to get the most bang for your buck!
Use the money to fund your own amazing financial goals like building a six-month emergency fund, like saving more money for retirement, like paying off your mortgage early, like funding your children’s college educations, like giving generously to help fund causes you care about, or even taking an epic, paid-for family trip or vacation!
Check out these related articles!
What do you do to help ensure that you spend money wisely? Are you going to pay down debt, invest, build your emergency fund, save for a large purchase, or spend the money on something fun? Leave a comment below and let me know—I would love to hear your ideas!
Invitation to Share
Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!
Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.