Do you have extra cash sitting in your bank account?
If you’ve inherited money, built up some savings, or recently won the lottery, you might want to put the extra money to good use.
Money that’s simply sitting in your bank account is not realizing its full potential. Sure, you might be earning some returns on it, but there are far better investments and purchases you could be making with that money.
Curious to know more? Our team at Aspiration is here to help. Our neobank has been helping customers use their money to generate more wealth through sustainable investments and high-yield savings accounts. We’ve put together this easy-to-follow guide on how you can maximize the opportunities that extra cash gives you.
How can you make your extra money work for you?
Extra money can help improve your financial stability.
People who have accumulated extra money – money that’s more than what they need for their living expenses – tend to have less stress. They’re less likely to be living paycheck-to-paycheck. And they’re able to pay off their debts quicker.
The extra cash provides a level of security that some might say even gives them an increased level of freedom. They can make the money work for them, instead of having to only work for it and see it disappear in a few weeks.
But, it’s not easy getting to this stage. Most people who’ve built up savings have worked at it for years, sometimes even decades. They’ve created habits that help them reduce their spending and save more for their future.
It’s hard work, but it eventually pays off. The extra money that people save up can be used to make smart investments that multiply their wealth further. They can invest it in mutual funds, mortgages, and retirement plans.
If you have extra cash but aren’t sure of what to do with it, look no further. Here are the 7 best ways to use your extra money.
- Invest in green or sustainable banks
It’s no secret that green neobanks and sustainable banks have some of the best APYs and mutual funds on the market.
These banks offer the same financial products and services as their traditional counterparts, but with an added focus on community development and the environment.
Their priority is to help their customers multiply their wealth through ethical investments in clean energy technologies and environmentally sustainable businesses.
Aspiration is one of these green neobanks. We provide up to 1.00% APY on deposits, helping you get up to 25x more in returns than what the Big Banks offer.
Putting your money in a green or sustainable savings account ensures high returns on your money with the added benefit of environmental conservation.
- Fund emergency cash accounts
It’s always a good idea to put your extra money in an emergency fund because you never know when life will throw you baskets of lemons.
The Covid-19 pandemic has helped us all realize how volatile the economy can be. Jobs can be lost in a manner of days and a sudden increase in living expenses can be hard to bear.
Cushioning yourself against these blows with an emergency cash account is one of the smartest things you can do.
Most personal finance investors recommend starting with $500 in emergency funds. If you have some more money to spare, try to add about 6 months’ worth of living expenses to it.
That’s enough to help you live comfortably while you transition through the abrupt life changes, such as an unexpected medical bill or a car repair. It’ll give you the peace of mind that you need, as well as the energy to move on.
- Refinance your mortgage
If you already own a mortgage, refinancing it with your extra money can help you pay less interest on it over the lifetime of the loan.
Refinancing a mortgage involves taking out a new loan and using the additional money to pay off your existing mortgage. The new loan will usually have a shorter repayment term and a smaller interest rate.
In some cases, the bank lender may just pay off the old loan automatically when you request a cash-out refinance. Interest rates are currently at a historical low, so if you get a 15-year repayment term on your new mortgage, you might just be paying the same monthly payments as your original loan or even less.
It’s best to calculate this for yourself but some estimates suggest that you might be able to save up to $200 per month of your mortgage repayments.
- Increase IRA contributions
Using your extra money to increase your IRA contributions is another great investment.
An individual retirement account, or an IRA, allows you to save up for retirement with options to defer tax payments on them or pay taxes pre-contribution. It’s one of the most secure ways to save up for retirement, especially as you can use it to complement workplace retirement plans like a 401(k).
If you use your extra money to deposit the max IRA contribution, which was $6,000 in 2020, at the beginning of each year, you could amass quite a decent amount by the time you retire.
With about 5% in annual return, you could build up to $700,000 or more in retirement savings if you contribute the max deposit for about 35 years. That’s really not a bad amount to have to enjoy the post-retirement life.
- Invest in brokerage accounts
In addition to an IRA, you could also use your extra money to invest in a brokerage account.
A brokerage account is a type of investment account that allows you to buy and sell stocks, bonds, and mutual funds. It works similarly to a regular bank account, in that you can transfer money in and out of the account, collect interest on deposits, and pay bills with it. But brokerage accounts go a step further and allow you access to the stock market.
Brokerage accounts give you the ability to multiply your extra money through careful and smart investing.
You can use it to buy an exchange-traded fund (ETF), which is made up of short-term federal government bonds. Or if you want a high-yield savings option, you could buy a brokered certificate of deposit (CD) that will act as a long-term investment.
- Pay off your student loans
If you have student loans, pay them off fast with any extra cash you have.
As of 2021, the average student loan borrower has an average of about $30,000 in debt. It takes up to 20 years to pay off this amount, and possibly double that if your student loan is upwards of $100,000.
Using your extra money to pay off your student loans quickly could be one of the smartest investments you could ever make. Without student loan debt, you could focus on other important life purchases such as a house or a strong retirement plan.
Personal finance advisors recommend that you start by paying more than the minimum student loan payment each month. If you have a large amount of extra cash to spare, you could consider refinancing your student loans to get a lower interest rate.
The key is to have a solid loan repayment plan. Some people have been able to pay off nearly $100k in student loan debt in just 2 years by unpacking all of their loans, developing an aggressive repayment strategy, and tackling each loan one by one.
- Invest in yourself
And, of course, you mustn’t forget to invest in yourself.
Having extra cash gives you additional freedom to pursue your interests and look after your wellbeing; because before you look after anyone else, you need to make sure that you’re living the healthiest life that you can.
With financial stability, you can participate in a sport you love without having to worry about equipment costs. Or you can buy books and attend courses related to your job so you can advance your professional career.
Investing in yourself is, by far, the most powerful thing that you can do.
Movements like F.I.R.E., which stands for “Financial Independence, Retire Early” offer money-saving principles and income-boosting projects that can help you multiply your extra cash in just a decade or so.
Aspiration can help you save more
Aspiration is a sustainable neobank that has helped over 1.5 million customers make their extra money work for them. Our high-yield savings account offers up to 1.00% APY on deposits that will help you grow your deposits quickly. On top of that, we manage our own Redwood mutual fund that invests only in sustainable, environmentally-friendly businesses.
We commit to high ethical standards in everything we do. Our bank does not invest in any fossil fuel companies, private prisons, or weapons manufacturers. It’s our priority to give our customers the best service they need that’s always aligned with their values.