At some point, you may get a promotion at your new job, reduce your liabilities by moving to a cheaper place, and increase your assets. All of these valid financial decisions will leave you with a surplus. This, however, is not your financial end goal; this is where the game actually starts. It’s like in a video game where, upon leveling up, you finally unlock all the exciting end-game content that you’ve been striving to see since you installed.
However, figuring out what the best thing to do with this money is won’t be as easy. At the same time, there are so many bad ideas (that may initially look appealing) to avoid. With that in mind and without further ado, here are the top five best and worst things you can do with your money.
5 Best things you can do with your money
Figuring out what to do with your money seems easy enough; however, if you choose to maximize the impact of this surplus, you need to figure out where this money will have the biggest impact on your life in the long run. Here are five such ideas.
1. Creating an emergency fund
One thing that usually puts people in a financial problem is an unexpected expense. Even people who live paycheck to paycheck don’t necessarily have to struggle, that is, until something breaks, a medical bill arrives, or they lose their income for a month or two. In these scenarios, they either embark on a debt spiral or undergo a significant quality of life downscale. With an emergency fund, this doesn’t have to be the case.
2. Clearing your highest-interest debt
The next thing you want to do is further reduce the amount of debt you have, especially if it’s a high-interest debt. There are several ways to do so, and the choice is yours. If you can consolidate, you don’t even have to increase your repayment rate by that much. At the same time, you could make a credit payment every two weeks instead of once a month or even increase the amount you pay monthly.
3. Investing in the future
Investing means employing your assets to work for you. By doing so, you’ll enable your money to make you more money. Brokerage accounts are so easy to open, and the resources on the best available stocks are out there to be found. All you have to do is commit a bit of your time and effort to research and spend some money on the stocks that seem the most promising. Most importantly, stocks are not the only option you have.
4. Investing in your own education
Once you have more money than before, you can start looking for online courses and learning materials. For instance, increasing your financial literacy will help you understand everything that we’ve listed here a lot better. Being financially literate doesn’t make you automatically more affluent, but it is a first step on this path. You don’t have to learn things related to finance. You can also enroll in courses that will make you more competitive on the job market.
5. Giving to charity
Another thing to keep in mind is the importance of giving to charity. For you, this might be a minor expense, but for someone out there, the sum that you set aside could be actually life-changing. Not only will giving to charity make you feel good, but it will make an actual difference in the world. Even if you don’t have much, no one is forcing you to give a set percentage or an amount. Still, doing some good is better than not doing a thing.
5 Financial decisions that you should never make
There are some financial decisions that you should never make, decisions that can bring about your financial ruin. This may not happen after one instance of reckless spending or one bad financial decision (unless it’s a major one). Sometimes, it takes months for this cumulative damage to fully manifest. Still, here are the top five financial decisions you should never make.
1. Living above your means
Vanity gets the better of people, even if they’re modest by nature. Sure, you’ve set your car budget to $4,000, but the last car you just saw is clearly so much better than all the other ones you’ve seen, and it’s just $600 over your budget. You don’t buy a car every day; surely going over the limit is justified in this scenario? Well, a car that you can’t afford is often a car that you can’t maintain. It doesn’t stop at these $600. A limit is there for a reason and you need to avoid living above your means.
2. Living off debt
Sometimes you have no choice; we understand that; however, if you have to get a payday loan to get a new TV because your old one just broke and you’re 12 days from your next salary, this is a bit hard to justify. It’s even worse if you’re getting a loan in order to get an even bigger TV with more colors. Getting in debt for luxury is generally hard to justify, especially over something that’s clearly not a priority.
3. Seeing dedicated funds as an extension of your wallet
A savings account is its own separate thing; it’s not a piggy bank that you should smash every time you’re $50 short for a weekend party. Other people get money from their retirement fund, college fund of their kids, etc. You’re setting aside this money for a reason, and when you develop a habit of just reaching into this vault every time you need a few bucks, soon you won’t be able to stop.
4. Making speculative investments
Previously, we’ve mentioned investing as one of the best ways to spend your money, and this is still true. However, putting all your money into high-risk speculative investments is not really investing - it’s gambling. Previously, we’ve mentioned living above your means and spending money on luxuries you don’t need. Well, even this is a better investment than this type of financially reckless behavior. At least these luxuries have personal value.
5. Being too optimistic
You’re supposed to save money when your income is high. You see, no one thinks about saving when their income is so high that they can afford everything that they want. Why think about a scenario when you won’t be able to afford an emergency during a period in your life when you can afford everything you set your mind on? The problem is that things don’t always run smoothly, and even your finances will have ups and downs.
Taking opportunities and avoiding traps are equally as important
Like in boxing, you’re trying to hit your opponent without getting hit. What good is making positive financial decisions if you’ll spend all this surplus on something risky, unnecessary, or just ridiculously overpriced? What good is creating a surplus if you don’t put it to good use? Finances are complex but they become a lot clearer once you see the full picture.
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Written by Andrew Gosselin CPA
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