You are probably wondering who and how someone gets to have any financial leftovers unless they are a billionaire or millionaire. How lucky is that person? Yet some of us can barely afford to settle our bills.
Believe it or not, it happens; it is not some form of magic. You too, have been having these financial leftovers only that you have not been keen to account for these left-overs.
That’s why today, I want to share some ideas on what to do with your leftover money.
What Are Financial Left Overs?
Financial leftover is the extra buck that remains after you are done meeting all your financial obligations.
The financial leftovers don’t necessarily have to come from the money left after paying your bills. It can also be surplus cash or income you had not forecasted in your budget. For example:
- Tax refunds
- Tax relief checks
- Unused vacation funds
- Decreased spending surplus
- Unexpected bonuses or discounts
From the look of things, you probably can see why you have probably been missing out on your financial left-overs. It is hard to detect them if you don’t have a monthly budget for your income and expenses.
A budget will help you determine your financial leftovers, including any unbudgeted surplus income. Most likely, you’ve been spending this money on luxuries you don’t need because you have no idea the leftovers exist.
Now that you understand your source of financial leftovers, here is how you can use that money:
1. Add it to Your Retirement Savings
The truth is that you and I aren’t getting any younger. The sooner you face this reality, the better it is for you to up your retirement savings game.
In the recent Wealth Formula Podcast, we discussed accepting volatility as the new reality. Volatility may affect the total amount of money you need to contribute to your retirement savings. Therefore, right now is your chance to save to minimize the possibility of working in your retirement.
If your employer offers a matching 401 (k) plan, this could be your chance to take full advantage of this generous contribution. You could use the leftovers to improve your saving rate and max out your contributions.
Your options are not limited to the 401(k) plan. You could also put your financial leftovers into an Individual Retirement Account (IRA). It is another tax-advantaged retirement saving vehicle we have discussed in previous episodes of the Wealth Formula Podcast.
2. Set Aside an Emergency Fund
The availability of financial leftovers may finally be the opportunity you have been waiting to start an emergency fund. An emergency fund is the money you use when faced with real financial emergencies, such as unexpected job loss. Financial experts recommend that an ideal emergency fund should equal three to six months of your expenses.
Your high financial obligations sometimes make it harder to achieve this target. But you can now be on a path to achieve this target with the financial leftovers available to you.
3. Start a Side Hustle
Having a side hustle could do you much better than having an emergency fund. Imagine a scenario where you lost your job without notice.
The situation would not be pleasant, particularly if you had dedicated your entire life and energy to that job. It could be a hard blow to take and even harder if you cannot find new employment fast.
However, the situation would be much different if you had a side hustle that was up and running in the background. You may continue growing the side hustle as you seek new job opportunities. Or, if the hustle is performing well, you may turn it into your main hustle.
The great news is that side hustles do not require much start-up capital. Your one month’s financial leftover may be just enough to get your side hustle up and running. For example, if your side hustle is being a freelance accountant, you only need a laptop and the latest accounting software like QuickBooks Online or Xero.
4. Pay Off Debts
As an entrepreneur, you may use your financial leftovers to bring down some of your debts. An excellent place to start would be your credit card debt.
Remember, credit card financing comes with the added credit rating feature. Settling your credit card debt on time may improve your ratings. A good credit rating is a huge plus for any business.
5. Start Saving for Your Child’s College Fund
One of the trending discussions today is the issue of the piling of student loan debt. The Biden administration has gone as far as canceling about $ 4 billion of federal student loans.
That is enough proof that paying for your kid’s college education can burden you in the future. But you can start easing that burden today by putting your financial leftovers into a 529 plan. It is a tax-advantaged investment account that allows your money to grow so you can use it to pay for your kid’s college education.
The Bottom Line
Having a monthly budget would be an excellent place to start if you want to develop some sense of financial discipline. It will inform you when you have any financial leftovers that you can use for all the purposes we discussed here.