6 smart ways to spend extra money
By Matt Alderton
June 25, 2015
It happens all the time. Bits of money — a few cents, a couple of bucks, maybe even a big chunk of change — find their way unexpectedly into your bank account, your wallet or the pocket of yesterday's pants. Just as quickly as they arrive, however, they're gone again.
“For people who aren't conscious about their money, those little bits of what I call 'found money' barely even register,” says Matt Kelly, a Durango, Colorado-based personal finance coach and newspaper columnist.
That doesn't mean they're insignificant, however. On the contrary. Whether it's $5 you find on the ground, $20 you'd forgotten your friend owed you, $50 Grandma sent for your birthday, $100 you won in Vegas or $1,000 in tax-refund money from the IRS, extra cash can add up quickly.
“Many people have experienced the result of adding loose change from pockets every night to a jar. It adds up surprisingly quickly,” says Kevin Gallegos, vice president of Phoenix operations at Freedom Financial Network, a national provider of consumer credit and financial advocacy services. “Check any compound interest calculator and see the results.” For example, if someone invests $100 a month with a 3 percent return, in 10 years, there will be about $14,000.
The question isn't whether you should leverage found money, therefore. Because of its accumulative powers, it's how. Here are six ideas:
1. Pay down debt
Whether you have outstanding credit card balances, student loans that still eat at your budget years after college, or a car loan that you want to pay down faster, small sums of extra money can make a big impact on your debt.
“People might have $3,000 in debt, so they think $20 isn't going to do very much,” says Joe Saul-Sehy, co-host of the personal finance podcast Stacking Benjamins. “They're wrong. Using a tool like ReadyforZero you can see the progress you're making and [forecast] what the long-term impact on your debt will be.”
With a tool like ReadyforZero, you can adjust how much you can afford to pay each month and see the impact on your payoff date and interest costs. Dedicating as little as $20 a month in found money, you might find, could save you months or years and hundreds of dollars in interest payments.
2. Invest in education
Consider putting found money toward a class, seminar or professional certification. “Investing in yourself is one of the best things you can do,” states Kelly, who says even small investments in education can pay off by giving you new skills, knowledge and credentials that increase your long-term earning potential.
If you work at a nonprofit, for example, consider getting your Certified Association Executive (CAE) credential. Likewise, if you work in construction or IT — where project management is a prized skill — consider getting your Project Management Professional (PMP) credential. Both the CAE and the PMP will increase your employment and earning prospects in industries where they're relevant.
Alternatively, consider enrolling in a public speaking or writing class at your local community college; while the classes themselves won't catapult you to a new earnings tier, the skills you acquire — could.
“Investing in a course to improve yourself professionally can pay off in the long run,” agrees Andrew Schrage, co-owner of Money Crashers Personal Finance. “It will look great on a resume if you're looking for a job, and also makes for a nice mention at a performance review.”
3. Invest in your home
Despite fluctuations in the housing market, real estate remains a good investment, according to Gallegos. “If you own a house and are stuck with a high-interest mortgage, a $3,000 tax refund could cover all or most of the costs of refinancing … [which] could save thousands more in interest charges over the life of the mortgage,” he says. “If you own your home, consider using a windfall to cover major or minor maintenance to make sure no bigger — and more expensive — problems arise down the road. In addition, these capital improvements can sometimes create additional equity.”
Investing in home improvements could help you lower your energy bills, if you invest in energy-efficient upgrades, and could even help you create a second income stream, if you use it to make a spare bedroom or basement rentable. “Sprucing up an extra bedroom so you can rent it out on Airbnb … could translate into hundreds, if not thousands, of dollars over the long run,” Schrage says.
4. Start a business
For as little as $100, Kelly says, you can start a business that makes you extra money. If you love snowboarding, for example, you could teach snowboarding classes. If you've succeeded at weight loss, you could share your winning strategies as a personal trainer. And if you knit, you could open an Etsy store selling knitwear. “If you have a certain skill set, investing in a microbusiness that you do part-time can increase your satisfaction with your life, and could ultimately grow into a full-time job that you're passionate about,” he explains.
Plus, starting a home-based business could entitle you to some sweet tax benefits, such as the home office deduction.
5. Go shopping
Spending the money you find could help you save the money you already have — that is, if you spend it in the right places. For instance, consider using extra money to stock up on household essentials such as shampoo, toilet paper, paper towels and, if you're a new parent, diapers. Buying these items in bulk is more expensive upfront, but yields long-term savings thanks to lower unit costs.
For instance, consider two packages of Size 4 diapers at the same store: One brand is $47.12; the other is $37.93. The cheaper of the two is not actually cheapest, as it has only 116 diapers (i.e., 32.7 cents per diaper) compared to 152 (31 cents per diaper).
“Using your money to buy … in bulk at Costco or other warehouse clubs makes sense,” says Schrage, who cautions against buying fresh food this way. “Make sure you're not buying more than your household can consume before the food spoils.”
6. Have fun
Although it's good to have goals, it's OK to splurge sometimes. Instead of buying “stuff,” however, consider buying experiences. If you have $100 in found money, for example, consider spending it on a staycation — a night in a nearby hotel with your spouse, for example, or a lift ticket at the nearest ski resort — instead of on a new pair of shoes. Memories last; material things don't.
“Life isn't always about saving for tomorrow; sometimes it's about having fun today,” concludes Saul-Sehy. “Just be smart … Giving yourself a memorable trip beats buying more junk to throw in the corner any day.”