As the saying goes, “money doesn’t grow on trees.” So, when you happen to find yourself with some extra funds, it’s important to make the most of them.

Whatever the source of your unexpected windfall—a bonus from work, a tax refund, an inheritance, or just a bit of budget surplus—it can be exciting, and splurging can be tempting.

While nothing is wrong with treating yourself, it pays to pause and consider ways to leverage your extra cash to improve your financial goals.

Prioritize Your Financial Goals

Take some time to think about your own financial goals and rank them in order of importance. Once you have a good understanding of your goals, explore ways to allocate those extra funds, such as:

  • Pay off debt and improve your credit score.
  •  Save for emergencies and unexpected expenses.
  •  Invest in your future and reach your financial goals.
  •  Create a sense of financial security and stability.

Pay off high-interest debt

Although this may not be the most exciting option, if you carry any high-interest debt, such as credit card debt or a personal loan, it’s important to prioritize paying it off. Paying down these types of debts can save you money in the long run since they can quickly accumulate and become a financial burden.

Start by paying off the debt with the highest interest rate first, saving you the most money in interest payments. If you have multiple high-interest debts, consider consolidating them into one lower-interest loan to make it easier to manage and pay off.

Build an emergency fund

Having an emergency fund is crucial for financial stability. Without relying on credit cards or loans, it can help cover unexpected expenses, such as car repairs or medical bills.

Experts recommend saving at least three to six months of living expenses in an emergency fund. If you don’t have one, use your extra funds to build one. Consider opening a high-yield savings account to earn interest on your emergency fund.

Invest in a Retirement Account

It’s never too early to start saving for retirement. If your employer offers a 401(k) or similar retirement plan, take advantage of it and contribute as much as possible. If your employer doesn’t offer a retirement plan, consider opening an individual retirement account (IRA).

Retirement accounts allow you to save for the future while providing tax benefits. Plus, the earlier you start saving, the more time your money has to grow.

Invest in yourself

Investing in yourself can also be a smart way to allocate extra funds. This can include furthering your education, attending conferences or workshops, or even starting your own business. Think about your long-term career goals and how investing in yourself can help you achieve them. This can lead to higher earning potential and financial stability in the future.

Splurge a little

There are several financially prudent ways to spend extra cash, but it is okay to spend some of it on something fun, too. Just take the time to consider your financial needs and goals and ensure your purchases align with them.

Putting the money into a savings account while deciding how to spend is a smart strategy. You may treat yourself with a small part of it, but use the rest to pay down debt, boost your investments, or keep saving.

Final thoughts

Getting the most out of your extra funds is key to financial stability and growth. By paying off debt, building an emergency fund, investing in retirement, and investing in yourself, you can make the most of your money and set yourself up for financial success.

Remember to consider your financial goals, risk tolerance, time horizon, and personal values when deciding where to allocate your money. And don’t be afraid to seek the advice of a financial advisor to help you make the best decisions for your financial future.

Whether it’s an unexpected windfall or not, being thoughtful with money is always the best way to achieve your financial goals.