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I Have Money Left Over in My Budget. What Should I Do With It?

Wondering what to do with extra money? Follow these actionable tips to make the best use of leftover money from your budget.

September 3, 2021

Most of us know the uncomfortable feeling of running out of money with expenses looming. But what if the opposite happens? If you are in the enviable position of having leftover money from your budget, you might be tempted to spend it — or, you can think about what you can do with your money to help put you in a better position financially.

If you’re like most Americans, your regular expenses eat up most or all of your income, leaving you in a cycle of living paycheck to paycheck. One powerful way to break free of this cycle is to start budgeting — and stick to that budget. 

By budgeting, you’ll become more aware of where your money is being spent, enabling you to make more informed financial decisions. And when you find yourself in the fortunate position of having some extra cash, you can start investing excess personal cash, building up an emergency fund and saving for financial goals. 

If you find yourself with leftover money in your budget this month, follow these helpful tips to make the most of it. 

What to do with extra money

Extra money leftover in your budget can be a pleasant surprise. And it’s certainly easy to find things to spend your money on, like a fancy dinner or a quick trip. But if your goal is better financial health, it’s important to be intentional with what you do with these excess funds. 

Your financial goals may differ, but here is a common list of priorities for extra cash:

  • Saving for emergencies

  • Paying down debt

  • Saving for retirement

  • Saving for other financial goals

  • Rewarding yourself 

Let’s dive into each topic individually to explore how you can save for these goals. 

Saving for emergencies

For many people, the top priority might be setting some money aside to pay for emergency expenses. These funds should specifically be reserved for unexpected expenses, such as:

  • Vehicle repairs

  • Medical emergencies

  • Pet emergencies

  • Normal expenses if your household loses a source of income

Many Americans simply do not have enough savings to cover typical emergencies; a 2018 Federal Reserve study found that roughly 40% of Americans don’t have $400 set aside to cover an emergency expense without taking out a loan or adding to credit card debt. 

Financial advisors recommend that you have at least $1,000 saved for emergencies. 

Many experts recommend having 3 to 6 months worth of expenses set aside, but this is not attainable for all households. In some cases, it might make sense for debt payoff to be a higher priority once there is a reasonable amount saved up for emergencies. 

It’s a good idea to keep emergency savings liquid, which means easily accessible. This could mean that the funds are kept in a checking or savings account, rather than invested. You may wish to consider using a high-yield savings account in order to earn more interest. 

Got your emergency fund on lock? Move on to the next priority. 

Paying off debt

Using extra cash to tackle existing debt will not only reduce your debts, it may also lower future monthly debt payments. This can create a snowball effect, freeing up more money in your budget in future months.

Paying off debt looks different for each household, but likely means making extra payments on:

  • Credit card debt

  • Personal loans

  • Student debt

  • Car loans

  • Mortgage loans

It’s a good idea to start by paying off the debt that has the highest interest rate. In many cases, this means paying off credit card debt first, followed by personal loans and other high-interest loans. Low-interest debt, such as mortgages and car loans, can be the next step. 

Saving for retirement

Saving for retirement isn’t sexy, but it’s incredibly important. And the earlier you can start, the faster your savings could grow (thanks to the magic of compound interest).

Here are a few ways to save:

  • Contribute to your employer’s retirement system, especially if they match investments

  • Contribute to a Roth IRA or other personal retirement plan

  • Make another plan for funding your retirement years

There are different expert opinions on how much you need to save for retirement, but for most of us, the answer is probably … more than we currently have saved. 

Think about investing your retirement funds, so that your saved money can start making you money. What can you do with your money to make money? Start by checking out our Investing 101 guide.

Saving for other financial goals

Saving for non-retirement related goals is the next priority. This could include:

  • Saving for a down payment

  • Saving for a vacation

  • Saving for your children’s future or college education

  • General savings

What to do with this money depends on how far out the goal is. If you’re saving for something 10 or 20 years down the road, it might be worthwhile to invest the money, but if you’re hoping to use the money soon, think about keeping the funds liquid in a savings account. 

Rewarding yourself

Saving for retirement is important, but so is enjoying your life along the way! 

If you have been making solid financial decisions, paying down debt and saving money when you can, don’t feel guilty about rewarding yourself from time to time.

This could be something as simple as a cappuccino on the way to work, or as luxurious as a vacation. 

If you want to have extra cash, but credit card debt is in the way, check out Tally1, a powerful tool that’s helping Americans pay off credit card debt faster. Use Tally to create a custom payoff plan in minutes and use our low-interest line of credit to help you take steps toward a debt-free lifestyle.

1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.90% - 29.99% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.