Extra Cash Lying Around - Here Are 9 Best Ways to Capitalise

Extra Cash Lying Around? Here Are 9 Best Ways to Capitalise

Posted on 17th July 2019

Too much of a good thing is bad, or is it?

Because having extra money is anything but bad, right?

There are countless things you can do with it, from investing it wisely to burning it for fun.

Regardless of the source of your extra dough ― years of hard work, a winning ticket in the raffle, inheritance, lawsuit settlement, you name it ― knowing how to make the best of it is something most people fail at. In fact, most people immediately assume a license to spend that extra cash because they feel it is not really theirs or it is “surplus”.

Think about the last time you ran into some extra money and how tempted you were to spend it on materialistic possessions, such as a new gadget?

You see, that right there is a problem. Because you consider this money to be surplus, you value it less than you should, which results in a large amount of irresponsible spending, or worse, a change in your financial behaviour. T

his is especially true for unexpected windfall gains such as a big bonus, winnings from gambling, or cash gifts from a relative.

For instance, you come into £1,000. You get super ecstatic and your heart hankers you to purchase that latest new iPhone. And so, you end up spending more than £1,300 on a gadget thinking it just cost you £300 as those £1,000 were surplus. What’s more, you may set a precedent for yourself that you really like iPhones and won’t settle for anything less in the future, even if they are completely superfluous and extortionate.

Long story short, your extra cash may actually make you poorer in the long run, if you think of your extra cash as surplus and disposable. That is bad and unwise.

So, before everything else, change your mindset and stop thinking of that extra money as surplus. Of course, “wise” use of that extra cash can have different meanings for different individuals. You may have some medical expenses that need attention and it makes sense to spend it on those.

However, all things being equal, there are nine notably prudent ways (in order of priority) to make that extra cash work for you, not the other way around.

Set up an Emergency Fund

First and foremost, it goes without saying that you need to have a backup fund in life in order to be prepared for the unexpected. A myriad of disastrous events can strike anyone at any time and without warning ― you could face a layoff, experience a natural disaster, get a serious disease, be the victim of a crime, and so on. All these can take a catastrophic toll on your finances.

Depending on factors like whether you have a family to take care of, your income and debts, the amount of feasible emergency fund you can set up can vary greatly. That being said, building a solid emergency fund should be your number one priority when budgeting for the long haul.

While no amount of money can undo a tragedy, coping with one can become much easier if you have a financial safety net in the form of insurance and emergency fund. Credit cards may seem like a viable backup plan, but relying on them will hurt your credit score and require you to pay high-interest rates.

Start by using your windfall cash to establish an emergency fund that can cover a full month’s worth of expenses, according to your lifestyle. Then, keep adding to it until you have enough for sustaining yourselves for up to three months without any income. The objective is a full six months’ worth of expenses, from your mortgage payment and insurance to gas, groceries, and household utilities.

While using your extra cash to put an emergency fund in place may sound boring, the purpose of this is safety, not growth. Life is full of surprises and you never know when this emergency fund will turn out to be a lifesaver.

Also, insurance is another tried-and-true way to give yourself a financial cushion to fall back on. It’ll give you the peace of mind that you’re always protected from financial woes. So, consider using your extra cash to get the following four must-have insurance policies:

  • Health insurance
  • Life insurance
  • Auto insurance
  • Home/Renter’s insurance

Invest in Your Retirement

All wealthy people have some common traits when it comes to managing their finances. The most salient one being their emphasis on delayed gratification. Eight out of ten high-net-worth investors maintain that investing in long-term goals is more important than funding current desires and needs.

Consider this:

If you put £100 every month toward your retirement instead of spending it on short-term pleasures, you’ll have roughly £40,000 after twenty years, assuming a 5% return rate. Of course, you can’t always do that as you can’t ignore your current needs. But you must understand the difference between needs (food, shelter, clothing) and wants (say, expensive sunglasses).

As you know, planning for retirement is something we all need to do sooner or later. With your extra cash, you can get a head start on that by building up a pension fund. In the UK, there are a couple of great ways to go about it:

Personal Pensions

Also known as “defined contribution”, these are pensions that you arrange yourself. You can either make regular or individual lump sum payments to a pension provider. The money you pay into a personal pension is put into investments (such as shares) by the pension provider. The money you’ll get from a personal pension usually depends on:

  • How much has been paid in
  • How the fund’s investments have performed – they can go up or down
  • How you decide to take your money

Your pension provider will send you annual statements, telling you how much your fund is worth. The best part about putting your extra money into a pension pot is that your contributions are tax-free up to certain limits.

Individual Savings Account (ISA)

Another way to leverage that extra cash for a better retirement is by putting it into an Individual Savings Account (ISA). It is a type of long-term, tax-free savings account available to the residents of the UK. This means you do not pay income tax or capital gains tax on capital gains, income, and interest from an ISA.

You can get an ISA from various financial institutions such as banks, credit unions, stock brokers, and friendly societies. There are four types of ISAs:

  • Cash
  • Stocks and shares
  • Innovative finances
  • Lifetime

There is a limit to how much money you can put into an ISA in each tax year, which is known as the “ISA allowance”. For the 2019/20 tax year, the ISA allowance is £20,000. The best part? You can take your money out of an Individual Savings Account (ISA) at any time, without losing any tax benefits.

Pay Off Your Debts

If you’ve already taken care of your emergency fund set up to stay prepared for the unexpected and invested in a plan for your retirement, then you should pay heed to the third and final part of the three-part equation for achieving full financial security.

That third part is paying off high-interest debts, such as private student loans, car loans, credit cards, personal loans, and payday loans. If you have any of these debts going on, your extra cash should be directed at clearing them off. It is likely you don’t have enough to clear them off completely, but you can still make a substantial dent with your extra dough.

Doing so will result in less interest charged each month and take a massive burden off your shoulders. Ideally, it is only after you’ve taken care of this three-part formula should you proceed to make other investments and expenditures, listed below.

Donate to Charities

You might not have expected this to be in the list, but helping others and giving back to society is indeed one of the best ways to capitalize on your extra cash. To name just a few of the many issues plaguing society today, where your extra cash can make a difference:

  • Hunger: 821 million people ― one in nine ― still go to bed on an empty stomach each night. Poor nutrition causes nearly half (45%) of deaths in children under five ― 3.1 million children each year. (Source)
  • Mental health: Between 2003 and 2013, 18,220 people with mental health problems took their own lives in the UK. Despite that, UK institutions receive only 5.5% of the UK health research budget. (Source)
  • Cancer: Between 2014 and 2016, more than 1,60,000 people died from cancer in the UK, that’s around 450 every day. Every four minutes someone in the UK dies from cancer. (Source)

While you may have enough in your account to ensure your own and family’s well-being, not everyone is fortunate enough to afford even the most basic healthcare. A small donation every now and then from you can make a big positive impact on someone’s life. Donating your extra money to causes like cancer research, eliminating hunger, and so on is unquestionably a good idea.

Besides, if you are not particularly fond of philanthropy, you can always choose to donate toward animal welfare. According to Dogs Trust’s Stray Dogs Survey Report 2018, there are currently 56,043 stray dogs across the UK.

Donate to charities

Amounts as low as £30 could vaccinate a litter of five puppies against life-threatening diseases. £8 a month could help vaccinate and collar stray dogs, protecting them from brutal culls carried out in the name of rabies.

In the end, what do you want to be remembered for? The amount of money you made? The size of your house? The number of cars you owned?

If you have the extra financial resources to make this world a better place, then don’t think twice. True happiness lies in helping others and solving problems. So, just do your part, inspire others to do theirs, and be remembered for all the good you did for this planet.

Invest in Blue Chip Stock

According to Merriam-Webster, a blue chip stock is defined as “a stock issue of high investment quality that usually pertains to a substantial well-established company and enjoys public confidence in its worth and stability”.

In other words, blue chip stocks are shares of extremely large, industry-leading companies with a demonstrated history of sound financial performance. Such companies have been in business for decades and are known as “blue chip” companies. Their market capitalization is usually in the billions and they are the paragon of reliability in their respective industries.

That is, blue chip stocks are fairly safe, low volatility investments that can be incredibly profitable in the long run. These stocks are known to have capabilities to endure tough market conditions and give great returns in good market conditions.

However, these stocks are usually expensive to purchase as they have a good reputation. Examples of blue chip companies include Boeing, Coca-Cola, Walmart, and IBM.

Now, stocks are never a get-rich-quick scheme (nothing is, for that matter). But investing your extra cash in a blue chip stock today can bring in an exponential return in the distant future (say ten to twenty years).

One of the reasons affluent investors swear by blue chip stocks is because they tend to compound at a reasonable rate ― between 8% and 12% ― with dividends reinvested, decade after decade.

Consider the same £1,000 example. Instead of purchasing an overpriced iPhone for instant gratification, if you invest that amount in a secure blue chip stock and left it alone for a few years, your returns can be stellar. Over the course of thirty years, with an annual growth rate of just 8%, you would have £13,200. Even after accounting for inflation, that is impressive growth.

In a nutshell, investing your extra cash in blue chip companies that have stood the test of time is a proven way to grow it and reap the benefits during retirement.

Invest in Learning

“An investment in knowledge pays the best interest.” – Benjamin Franklin

When you invest in learning, you invest in yourself and your abilities.

That is one of the best forms of investment, don’t you think?

There are many ways to go about it. For example, you can choose to pursue higher education at a reputed university. Investing in a master’s degree can open up a ton of lucrative work opportunities. High-level positions in both the public and private sectors often have a minimum education requirement, so going for a master’s degree can boost your resume, make you more eligible, and seriously increase your earning potential.

Analyze which field of study and degree interests you and aligns with your career goals. Also, if you’re employed, consider asking your employer if they’re willing to sponsor your education.

But you don’t necessarily have to go for an expensive degree, there are various reputed online certification programs that you can complete to become competent enough for bigger and better roles. Coursera and edX are two such renowned online learning platforms that offer courses from reputed universities, and their certifications do carry weight when it comes to finding work.

Besides, learning doesn’t just encompass college education and online training programs. If you are more of a “learn by doing” kind of person, you are better off starting your own side gig and building it into a profitable little business, while learning the ins and outs along the way. In the next section, we dive deeper into this.

Start a Side Hustle

Are you super passionate about something? Do you wish to someday quit your day job and travel the world while doing what you love? If so, you should definitely consider using your extra cash to invest in your own little venture, which with oodles of hard work, can someday grant you that coveted freedom from your humdrum 9-5.

Starting a serious side hustle is by far the best way to experience entrepreneurship first-hand, instead of attending classroom lectures or reading tutorials online. Not to mention how it facilitates the learning of useful skills, networking, and personal branding.

The usual side hustles such as freelance writing and dog walking require negligible financial investment to get off the ground, but as you’d expect, they are time- and labour-intensive and not particularly scalable. You’ll always have to swap hours for cash, which isn’t great in the long run.

Thus, the key here is to avoid working a side gig where you trade your time for money (such as freelancing for pennies), as it puts a cap on how much you can earn due to your limited working hours.

Instead, shed your blood, sweat, and tears to build something sustainable ― a product or service you can proudly call your own, which truly adds value to a defined user base, and makes you money for years to come. Doing so may not earn you anything in the short run, but eventually, you’ll make money while you sleep, or in other words, you would have successfully set up a stream of passive income.

Now, as you have extra cash lying around, why not aim for something big? Start by contemplating what you’re an expert at. Because if you have deep knowledge of a particular subject, you already have a competitive edge.

If you’re not sure or if you feel you’re no expert at anything, think about your greatest accomplishments till date. What do they have in common? Is there anything for which your friends and family consider you as the go-to person for advice?

Then, streamline your choices by aligning what you’re good at with your passions. Because if you aren’t willing to work late nights and weekends for this, it won’t be long before you get burned out and call it quits.

Start a side hustle

Now, brainstorming over, you likely have an idea or two which can be executed upon. If not, pick a niche that interests you and learn as much as you can about it. Ideally, pick a niche where people are sure to spend money regularly, such as health, food, beauty, and the likes.

Next, determine if that idea can be turned into a product or service. This can be a physical product such as a book or a digital one such as a mobile app or an online course. It can also be a subscription-based SaaS product or an e-commerce storefront.

Many of these ideas, such as a mobile app or SaaS product, require you to spend considerable money before making money. This is where your extra cash comes into the picture ― no need to take loans or get into debt, as you can use this money to hire the necessary personnel such as designers and developers.

You don’t necessarily have to (and possibly, can’t) do everything yourself, but being the owner, you do have to make sure the execution is going as per your idea.

Finally, get feedback on your creation and iterate. Start focusing your spendings on digital marketing to land more and bigger clients. With a ton of hard work and some luck, your extra cash might just make you a successful, prosperous entrepreneur.

Invest in Real Estate

If you have abundant extra cash lying around, investing in tangible assets like real estate can be a very smart move.

A couple of sections back, we talked about the idea of building a sustainable source of income, one that requires an initial hefty investment in terms of effort and/or money but can pay dividends on autopilot for years to come, aka passive income.

To continue along the same lines, if you have enough extra money, investing in a residential or turnkey rental property is an ideal way to generate a substantial passive income on a monthly basis.

In principle, the process is fairly uncomplicated. You research properties that are in decent condition and preferably in good areas. Then, find and pay a credible contractor to make any repairs and make sure the property is in top-notch condition.

Once you bag some good tenants, there’s very little left to do besides waiting for the rent checks to roll in every month. Hire a reliable property management company to take care of the administrative tasks, including collecting rent, documenting and paying for maintenance and repairs, and ultimately sending the payments to you.

If you opt for turnkey investment properties, then almost everything is already arranged. Basically, these are fully renovated properties that are already thriving with tenants and managed by a property management company.

In this case, all you need to do is purchase the investment property, let the professionals manage it and collect your monthly cash flow checks while your tenants help you build equity.

Build a Bucket List Fund

Finally, your extra cash doesn’t all have to go into boring investing and careful planning. If your financial situation is sound in the sense that:

  • You have three to six months worth of emergency fund in place,
  • You have a sizable pension pot or ISA for retirement,
  • You have cleared all your high-interest debts, then,

You can go ahead and use that extra dough to fund your bucket list. Keep depositing a small portion of your monthly income into it and use it solely for crossing off things from your bucket list and simply enjoying life. Depending on how much extra cash you started with, it wouldn’t be long before you have enough for nice, exotic vacations

After all, life is about creating memorable experiences that stay with you forever. All work and no play will eventually drive you crazy. Thus, while it is important to be prudent with your windfall, it is just as important to have a little fun too.

Build a bucket list fund

You’ve got one, short life. And there are a million things to see and do before you kick the bucket. So, in all seriousness, leverage your extra cash to, say:

  • Go skydiving
  • Swim with sharks
  • Float carefree in the dead sea
  • See the northern lights
  • Backpack across Europe
  • Or just buy yourself a fancy meal

Over to You

There can be hundreds of ideas rushing through your head when you stumble upon an astonishing amount of extra cash or a windfall gain. On the one hand, you have this unyielding urge to blow it on the newest piece of tech everyone seems to be buying. And on the other, some rational part of you wants to make sensible use of it by making unexciting investments.

Why not do both? Taking a small portion out of it (ten or twenty per cent) and earmarking it for fun and travel related activities is absolutely all right. Investing the rest in any of the aforementioned game plans is, however, the best way to make the most of it.

So, what would you do with your extra cash? Do share your thoughts with the Peachy community by dropping a comment below!

Author: Katre Kaarenperk-vanatoa

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