If you happen to be sitting on some extra cash, you may be wondering how to put it to its best use. The answer depends on your personal financial situation. Learn how to assess your situation and determine when to save your cash, when to invest it and when to use it to pay down or pay off debt:
Cash is a necessity. It especially comes in handy when you have an unexpected or emergency expense. For this reason, it is wise to have at least six to 12 months worth of expenses stashed away in a savings account. While the money sits in the savings account, even in the low interest rate environment, you are earning some money on your money.
If you still feel a bit hesitant about the current economic situation, you can invest the difference of your cash into cash equivalents, like certificates of deposit. Spread your cash out into certificates of deposit that have maturity dates that start at three months and go up to five years. This provides you with access to your cash at regular intervals to reassess its use, while typically earning higher interest rates than a traditional savings account.
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If you have a cash stash that exceeds the six to 12 months, then you should invest the rest of it into longer-term investments such as stocks and bonds. How you invest the money depends on where you are in life. You may want to funnel additional contributions into your retirement savings account. Or, investing in real estate may be the right move for you. Keep in mind that investing doesn’t require you to buy everything all at once either. Ease into your investments a little at a time and always make sure you have done your homework up front before investing your money.
Pay Off Debt
When you are paying on debt with interest rates that are higher than what you can earn on your money, then paying off debt is the way to go. High interest debt includes credit cards, personal loans and other consumer loans. If you are carrying these high interest debts and have cash savings to pay off or pay down the debt, then use it. Remember, this is after you have stashed away the six to 12 months of money to cover emergencies.
If you’ve been putting off paying down your debt because you’re not sure where to start, consider enlisting the help of a personalized Debt Payoff Plan. You’ll get concrete instructions about what debts to concentrate on first so you’ll get out of debt faster and save money in interest.
Cash and cash equivalents are important to have immediate access to, in the case of an emergency or an unexpected expense. Once this is out of the way, investing the rest of your cash and getting rid of your debt should make their way into your money plan.