Whether it’s a new side gig or a promotion, generating extra income is always a great feeling. Regardless of your age, it’s always a good idea to put your extra cash to work. Here are 3 simple and smart money moves you can make with extra income.
Create or Update your Financial Roadmap
You’re either a numbers person or you aren’t. Regardless, it’s very important that you teach yourself some basic accounting principles. First and foremost, you should understand how to create and sustain a budget. When bringing in extra cash you should always look to adjust your budget accordingly. Take a look at your spending and savings. On the spending side of things, try and pay off some of your outstanding debts with your extra cash. On the savings side, it’s a good idea to generally put away 15% of your income into a retirement account and emergency fund.
This principle can be used for small business owners as well. As your business begins to increase cash flow, you need to be on top of your finances right away. A great way to stay on top of your finances is to find a payment platform or popular online payment solution for your small business. These solutions will keep your finances all in one place and will oftentimes provide value-added features like financial reporting, tax preparation, and support.
Pay Down Your Debts
If possible, you should look to pay off all your debts. Most individuals look to increase spending when they earn higher incomes. We can blame the American consumer mentality on this one. The reality is, if you want to increase your overall long-term earning potential, you want to be debt-free. Start with the high-interest items first like credit cards. If you’re carrying a balance on multiple cards, pay off the highest interest rates first and make sure you pay them in full. This will increase your long-term savings and not to mention your credit score.
In today’s world, your money really doesn’t do much good sitting in your “savings” account. For millennials, retirement has never looked so far away. Nearly every cost of living has increased while our earning potential has arguably decreased. It’s flat-out hard to land a job, and once you do it’s even harder to put money away and create long-term wealth. Unless you’re a complete numbers whiz, everyone has their own style of investing. The bottom line is if you have money laying around you better find a long-term investing strategy that works for you.
Here are some tips that have worked for me in the past:
- Invest in what you know. If you aren’t a savvy or risky investor, stay away from individual stocks. Look at various indexes and mutual funds so you can mitigate risk and look for long-term gains.
- Develop your own unique strategy and stick with it. It’s always a good idea to listen to opinions and suggestions, however, it’s up to you to develop a strategy that works best for you. Once you’ve got your strategy down, you absolutely need to stick with it.
- For example, when I first started investing in high school I would always sell as soon as I was up 50% in any position. It was tough because I would often “lose out” on short-term gains but in the long run I came out positive. Hindsight is always 20/20 so don’t beat yourself up over what you “could’ve” earned. Just make sure you are overall in the green.
- Diversify: Any smart investor will tell you to diversify your assets. Whether it’s stocks, real estate, indexes, bonds, commodities, or even collections it’s never good to put all your eggs in one basket.
Investing is no easy task. It takes a lot of guts to put your money to work for you but let’s be honest, no one’s ever made it big without taking a risk. As long as you do your research and stay disciplined, you’ll come out on top.
Extra income comes with extra responsibilities. While it’s okay to buy yourself that pair of shoes you’ve been eyeing, make sure you don’t get too carried away. Use these three money moves to get ahead and make more green!