5 Ways to Use Extra Cash Effectively

Occasionally, you might find yourself with some extra cash, whether from a salary raise, a bonus, or additional income from your business. Often, when you expect this influx, you already have plans for how you intend to use it. Usually, these plans revolve around spending—your mind quickly jumps to what new items you can buy with this money.

However, only a small fraction of people consider investing this money. In fact, less than 5% actually take steps to channel this additional income toward their long-term goals. Below are some strategies for using that extra cash wisely.

1. Build an Emergency Fund: Nobody knows the future, and emergencies can arise anytime that require  financial resources. Use this extra income to establish or bolster your emergency fund. This serves two important purposes. First, it gives you confidence knowing you’re financially prepared to handle unexpected events. Secondly, it does not require to borrow money from others.

2. Invest in Your Children's Education: If you’ve already set goals for your children’s education, it’s wise to prioritize this extra cash towards those goals. Following a structured plan can help ensure their education is adequately funded. If you haven’t yet defined these goals, it’s time to consult with Hisab Kitab to start planning.

3. Contribute to Your Retirement Savings: Many people start thinking about retirement only 8 to 10 years before they plan to retire, which can be too late. It’s necessity to start planning for retirement as early as possible. Allocating this extra income to your retirement savings can give you a head start. As earlier you start, you will have more time to build a suitable plan for retirement. Avoid spending this money on short-term pleasures and instead, invest it with a long-term perspective.

4. Pay Off High-Interest Loans: Use any extra cash to clear loans with higher interest rates, such as credit card loans or personal loans. These debts can quickly accumulate if not addressed. However, don’t rush to pay off a home loan unless the interest rate exceeds 12%. If you’re interested in lowering your housing loan interest, consider reaching out for guidance. For those who have recently taken out a home loan, it’s possible to reduce the interest rate to as low as 2% or even less.

5. Purchase Special Insurance: Consider using the extra money to buy specific insurance policies, such as those covering critical illnesses like heart disease or cancer. These policies can be invaluable if the need arises, potentially saving a lot of money in the long term.

In conclusion, it’s important to use any extra cash flow to invest in your future rather than spending it on fleeting pleasures. Delayed gratification often plays a key role in creating a financially stable and secure life. Prioritize long-term goals over immediate desires to make the most of your additional income.