Profitable Things to Do With Extra Money
If there is anything like a "good problem," a perfect example would be a scenario of having too much money than you need and not knowing what to do with the excess.
In this article, we are going to give you great ideas for spending your extra cash without regret. Here, you will find our outline of things you can do with your spare money so that you can make a profit after a while.
What is Extra Money?
Extra money, or cash surplus, is when you have a positive account balance; it does not matter whether you are an individual or a business entity. In other words, this refers to a scenario where you have more money than you need to cover your usual expenses.
Cash surpluses can occur suddenly or be built up over a period of weeks, months, or even years. It can be in the form of cash on hand or a balance in your checking or savings account.
Despite the fact that many people are experiencing financial hardship across the world, even struggling to pay their personal loans or credit card debts, some people live with excess money. We do not want to look at the factors behind such income inequality because that is not the focus of this article. However, we want to emphasise that you do not have to be a millionaire to get extra cash. Your additional income from another source or spare cash from a friend (when you are not in need) falls under the category of "extra money."
What to Do With Extra Income and Spare Money
People make extra money in diverse ways, which include winning the lottery, inheriting someone else’s money, receiving a gift, and getting a financial grant. Sometimes, it happens as a pleasant surprise that you still have some cash left in your account after covering all expenses in your personal budget. In the midst of the excitement, you will be wrong to choose to go on a spending spree. Instead, you should relax and thoughtfully make your next move.
Here are the profitable things to do with extra money:
1. Finance your emergency fund
Having an emergency fund is one of the smartest financial decisions to make. This is not an investment but a kind of "insurance" for your financial life. It ensures that when things suddenly go bad or there is an unplanned situation that needs urgent financial rescue, such as losing your job, you will be able to get money to cater for yourself until things begin to improve.
Ideally, your emergency fund should contain enough money to cover your spending needs for at least three to six months. So, if you have not kept aside such an amount of money, you should open an emergency fund account and start saving in it with your extra cash now.
2. Deposit excess cash in a high-yield savings account
High-yield savings accounts are another option to consider when you have extra money and want to make passive income with it. They offer higher interest rates than the national average, which you can get on a standard savings account.
If you already have a high-yield savings account, you can consider using your extra money to open a CD (certificate of deposit) with your traditional bank or neobank. Thus, you allow the bank to invest your money for a period of time and pay you high interest in return. However, for this kind of arrangement, you should be sure that you will not need to spend the money on your CD for a long period of at least the next six months.
3. Start your business
Depending on the amount of extra money you have, you might be able to use it to start a business that you have been thinking of trying. It could be a side hustle, such as freelancing or selling on eBay. If the extra cash is really big, you could launch a fintech startup or any other full-time small business.
Concerning this option, we must emphasise that starting a business is not an easy task. It requires thorough planning and good decision-making. Therefore, do not rush into a commercial activity for which you do not have enough information about how it works.
4. Pay applicable taxes
Every income-earning citizen is obliged to pay taxes to the government. Failure to comply with this requirement in full could land you in trouble with law enforcement agents; see the case of a famous NFT artist who turned into an outlaw in Latvia.
The point we are making here is that whenever you earn or receive extra money, the first thing that should come to your mind is its tax implications. If you can determine that it is not taxable (such as a small cash gift), then go ahead and put it in a high-interest savings account, an emergency fund, or any other wise investment. But if it is taxable income, you should report it to the appropriate tax authority in your country and pay the necessary taxes.
Planning for your tax bill allows you to avoid spending a jackpot only to be hit with an unaffordable tax bill the following week. So, if you are uncertain about how your extra money may affect your taxes, you should speak with a tax adviser.
5. Pay off your debts
The debit has the potential to significantly enhance your life or ruin it. Therefore, you should remember your personal loan, car loan, student debt, mortgage loan, or credit card debt whenever you suddenly earn extra money. Timely debt repayment is one of the factors that help you improve your credit score, whereas late payments can hurt it and even cost you more money in fees.
As a rule of thumb, the lenders with the highest interest rates should be paid off first. This often entails paying off high-interest credit card debt in advance of personal loans, mortgages, student loans, and other low-interest debt.
6. Donate to charity
Almost everyone has certain not-for-profit organisations or charitable projects whose activities speak to their heart. You can spend some or all of your extra money funding a humanitarian course that you believe in.
When you earn extra money and do not know what to do with it, you can support a social, economic, or environmental project you want to see succeed.
Examples of suitable charitable organisations include those focused on making positive contributions to the state of:
- The environment – such as Greenpeace, WWF, Climate Foundation, Rainforest Action Network, and Environmental Defense Fund.
- Children’s welfare – such as the Children Charitable Trust, Action for Children, UNICEF, Save the Children, and The Children’s Society.
- Human rights – such as Amnesty International, Anti-Slavery International, Human Rights First, Human Rights Watch, and The Fund for Global Human Rights.
- Democracy – such as Freedom House, Protect Democracy, World Learning, Unlock Democracy, and Democracy Fund.
- Elderly care (senior citizens) – such as Honor Flight Network (free flights for veterans), SeniorNet (discounts on computer products and IT training for seniors), the Pets for the Elderly Foundation (helps seniors pay pet-adoption fees), Socks for Seniors (sends new pairs of socks to elderly people), and ITN America (an independent transport network that helps low-income elderly people pay for rides).
- Disaster relief – such as American Red Cross, International Relief Teams, Direct Relief, Doctors Without Borders (Médecins Sans Frontières), International Committee of the Red Cross, and Humanity First.
- Scientific/medical research – such as KidneyCure, CURE Childhood Cancer, American Heart Association, Breast Cancer Research Foundation, and Sickle Cell Warriors.
- Education (scholarships and grants) – such as the Association of International Educators (NAFSA), United World Schools, AMIDEAST, Educate Girls, Asha for Education, and Plan International.
- Animal welfare – such as ASPCA (American Society for the Prevention of Cruelty to Animals), Best Friends Animal Society, Animal Welfare Institute, Jane Goodall Foundation, and Alley Cat Allies.
- Sports and fitness development – such as the Foundation for Global Sports Development, Challenged Athletes Foundation, UEFA Foundation for Children, A Ball for All, PeacePlayers International, Right to Play, and Show Racism the Red Card.
7. Make more retirement contributions
Having extra money is an opportunity to take advantage of the compound interest magic by which a deposit in a retirement savings account grows. To begin, you can join your employer’s retirement system, start contributing to a plan like a Roth IRA, or open a personal retirement account.
8. Invest in yourself
Investing your extra income back into yourself is one of the smartest ways to add more value to yourself and boost your current and future profits! You can buy educational books and read them, participate in online courses, or join coaching sessions to acquire more skills for career success or personal growth. Some people do such things and end up making several thousand bucks more a year. You too can!
9. Invest in stocks
If you are interested in making a long-term investment in stocks, you can use your spare money to start it.
Purchasing stock allows you to become an owner of a publicly traded company. The firm's stock is made up of such small shares, and by purchasing stock in the company, you are betting on its long-term success and growth.
As a result, your shares could increase in value, and you might be able to sell them to other investors for a higher price than you originally paid. Therefore, if you choose to sell them, you may make more money in return.
10. Try non-stock investments
Aside from stocks, there are other profitable investment ideas to try when you have extra money. Here, we are referring to non-stock investments, which are also known as alternative investments. They are beneficial in several ways: investors get direct ownership of the assets, can live independently of stock market fluctuations, and enjoy a significant flow of income.
Non-stock investment ideas for extra money earners include starting a real estate business, going into peer-to-peer lending, trading in non-fungible tokens (NFTs), making money off of cryptocurrencies, and participating in crowdfunding.
11. Buy a home
Consider buying a home to get rid of your rent payment if you make a lot of money but don't know what to do with it or if your income is excessive. However, buying a home is preferable if you want to stay in the same area for five years or more. It will enable you to save more money. But, if not, renting a flat will be better while you try something else profitable with your extra money.
12. Enjoy yourself
Finding strategies to accumulate wealth with additional cash is a terrific idea. But remember that spending money on yourself is not a bad idea. You could spend more cash on a hobby, put money down for a trip, or finally make that significant purchase you've been delaying.
Ideally, no harm should come from rewarding yourself for your efforts occasionally. Finding the right balance between managing your finances responsibly and enhancing your quality of life is crucial for lasting happiness and good health.
Bonus: Spare Money Usage Mistakes to Avoid
We have been showing you various ways to spend your extra cash profitably. As a bonus, let’s now look at the common personal money mistakes you should not make with your spare cash.
Expecting quick returns on your investment
Making long-term investments while also anticipating rapid progress is a common mistake. Ensure to avoid it because it often does more harm than good to your expectations.
To successfully invest your excess cash, you need to be patient and optimistic. Avoid selling long-term investments in a frenzy when the market is not in your favour. With this in mind, things could improve soon. For this reason, we advise against putting any amount of money that you cannot afford to leave to grow over time in any type of investment.
Buying assets that depreciate quickly
Buying depreciating assets is another typical mistake, along with expecting quick returns on your investment. We are talking about an action such as purchasing a new car. A brand-new car loses a lot of value as soon as you leave the dealership!
It is much preferable to invest your spare money in assets that will appreciate in value or things that have the potential to increase in market value over time. That is why your aim as an investor should not be to impress others and struggle to stay above debt but to live a happy and prosperous life.
Learn more about personal money mistakes to avoid here.
When you have a large amount of money, there are a couple of things you can do with it, depending on your situation and priorities.
For some people, the next best thing will be to buy a home. This option is good if you are living in a rented apartment and do not intend to relocate in the next decade or more.
Other investment options to try with a large amount of money include starting a new business, buying a company, investing in real estate, and opening a certificate of deposit.
Contrary to what you might think, rich people, invest their money in long-term assets and financial instruments more than they spend it on luxuries and charities. In that way, they are able to sustain the inflow of funds to finance small and big projects, as well as take care of their personal and business needs.
There is quite a lot you can do with $5,000. Your options would include building an emergency fund, enrolling in an educational programme that would add to your professional qualifications, opening a high-yield savings account, investing in digital assets (crypto and NFTs), and giving yourself a treat (it pays to take care of yourself too).
The smartest thing to do with your personal money is not to waste it. And to ensure that you are spending it wisely, you need to have a budget and follow it. If you do not know how to create a personal budget, we recommend that you try any of the apps in this post.
Do not spend money on things you do not actually need or try to live above your means. Also, do not invest in any business or asset that you do not understand. In addition, avoid credit card abuse and do not make personal money mistakes.
Conclusion: Let Your Extra Money Work for You!
It can be quite frightening to figure out where to invest excess money or the type of account to deposit extra personal cash. Fortunately, in this post, we have shown you how to handle a situation where you have more ability to spend without running into debt.
Basically, think of spending your spare money in the direction of actually putting it to work. In that way, you can expect to make more profit. Indeed, it pays to avoid wasting money, no matter how small the amount is.
Try our tips with your extra money, and you will be glad you did.