What’s the Best Way to Use Leftover Money?


Q: I often have some extra cash leftover in my checking account at the end of the month—even after I've covered all my bills. What should I do with it?

Having some spare cash on hand each month is a good problem to have. However, leaving that spare cash in your bank account is a sure-fire way to eventually have it disappear without knowing where it went. One of the smartest money moves you can make is to give every dollar you earn a job. This puts you in the driver's seat, and on your way to achieving all the awesome goals you set for yourself.

Where exactly you allocate extra cash depends on your current financial situation, but here are a few good places to start.

1. Pad your emergency fund.

Very few people have fully funded their emergency fund with three to six months' worth of basic expenses, making this a good first stop for your extra cash. If you've already saved at least $1,000, which is typically enough to cover a deductible or repair, you can split your money between this savings and other goals. If you haven't yet hit the $1,000 mark, make doing so your top priority.

2. Up your contributions.

If you work for a company that matches a portion of your 401(k) contributions, consider raising your savings rate to recoup the full amount. Otherwise, you're leaving free money on the table. You can also up your contributions to an Individual Retirement Account (IRA), which is a good move if your company doesn't offer a match or you don't have access to a 401(k) at all. Investing even small amounts today can add up to huge savings down the road.

Related: How 3 Simple Choices Can Give You a Head Start Financially

3. Ditch your debt faster.

If you have lingering credit card debt, student loans or an auto loan, direct some of your spare cash to paying it off faster. You'll save the most money on interest payments by attacking debt with the highest interest rates first.

4. Create a new goal.

Of course, we all have goals besides saving for emergencies and retirement and paying off debt. Whether you want to travel more, buy a home or start a business, you're going to need some cash to get there.

There's no limit to how many savings accounts you can have, so open another dedicated to your new goal and begin stashing extra cash in that account. Keep it separate from your emergency account, so you can track your progress toward the goal.

Related: 3 Research-Backed Ways to Actually Hit Your Money Goals

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