Extra Cash? Here's How To Invest Wisely

If you have extra cash and want to invest, it's important to understand the basics of investing and the different types of investments available to you. Investing is when you put your money to work by purchasing assets such as stocks, bonds, or real estate, with the hope that their value will increase over time. While investing offers the potential for greater returns compared to traditional savings accounts, it also comes with the risk of losing money.

Before investing, it's crucial to set clear financial goals, determine your risk tolerance, and choose the right investment account for your needs. You should also consider the costs associated with investing, such as trading commissions, account fees, and investment management expenses.

There are various investment options to choose from, each with its own level of risk and potential return. These include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and alternative investments like real estate or commodities.

By taking the time to understand the basics of investing and conducting thorough research, you can make informed decisions about how to allocate your extra cash across different investment options to pursue your financial goals.

Pay off high-interest debt

If you have extra cash and want to invest, one of the best things you can do with it is to pay off any high-interest debt you have. This is a highly recommended strategy by financial experts and can set you on the path to achieving your long-term financial goals.

High-interest debt includes credit card debt, personal loans, and student loans. These types of debt can become even more expensive if their interest rates are variable. By paying off these debts, you can save money that would otherwise be lost to interest charges and free up more money each month.

• Stop adding to your debt: The first step is to stop using your credit card and switch to cash or a debit card for purchases. This will prevent your balances from growing, except for interest charges.
• Pay more than the minimum: Paying only the minimum amount will keep you in debt for longer. Instead, pay more than the minimum to reduce your principal balance and the interest charged on it.
• Lower your interest rates: Consider transferring your credit card balance to a card with a promotional 0% APR period. Alternatively, you can ask your credit card issuer for a lower interest rate, especially if you have a good history of on-time payments.
• Increase your income: Find ways to increase your income, such as asking for a raise, selling items you don't need, or taking on freelance work.
• Reduce your expenses: Look for ways to save money by reducing your expenses. For example, you can cook more meals at home instead of dining out or find a cheaper cellphone plan.
• Make multiple payments: Making more than one payment per month can help reduce the interest you pay and improve your credit score by lowering your credit utilization rate.
• Pay off the highest-interest debt first: Prioritize paying off the debt with the highest interest rate first. This approach is known as the debt avalanche method and will save you the most money.

Remember, paying off high-interest debt may not be the most exciting option, but it is a smart financial decision that can provide you with long-term benefits and peace of mind.

Build an emergency fund

Building an emergency fund is a crucial part of achieving financial stability. This fund will help you cover unexpected costs, such as car repairs, home repairs, medical bills, or a loss of income, without having to rely on credit cards or loans, which can lead to debt. Here are some detailed and instructive steps to help you build an emergency fund:

Set Small and Achievable Goals:

Start by setting a realistic savings goal. Rather than aiming for three months' worth of expenses right away, set a smaller initial goal, such as one month or even two weeks' worth of expenses. Achieving this first milestone will motivate you to continue saving. Gradually increase your goals to build momentum and make saving a habit.

Start with Modest Contributions:

Determine a manageable amount to contribute regularly to your emergency fund. This could be as little as $5 or $100 per month, depending on your financial situation. Find areas where you can cut back on expenses, such as reducing your monthly coffee shop visits or opting for a night in instead of a night out.

Automate Your Savings:

Set up automatic transfers to your emergency fund through your bank or employer. Most employers offer direct deposit, and some can even deposit into multiple accounts. Consider setting up a separate savings account specifically for emergencies and choose an account that is not easily accessible, so you are less tempted to spend the money.

Control Your Spending:

Once you start saving, avoid the temptation to increase your monthly spending or open new credit cards. Instead, focus on maintaining your savings routine and be mindful of unnecessary purchases. If you find you have extra money left over each month, consider increasing your savings contribution.

Save Enough for Peace of Mind:

The general guideline is to save enough to cover three to six months' worth of household expenses. However, this number may vary depending on your personal situation. If you have dependents or a single income, you may want to save closer to eight months' worth of expenses.

Replenish and Maintain Your Fund:

Only use your emergency fund for true emergencies, and remember to replenish it after each withdrawal. Unplanned expenses can happen at any time, so it's important to maintain your fund by consistently adding to it over time.

By following these steps, you'll be well on your way to building a solid emergency fund that will provide financial security and peace of mind.

Invest in stocks

If you have extra cash and want to invest it in stocks, there are several things to consider.

Firstly, it is important to remember that investing in stocks can be challenging and time-consuming, so it is not a decision to be rushed into. Taking the time to learn how to pick stocks is crucial.

Secondly, when investing in stocks, it is essential to have a long-term perspective. Short-term trading is often risky and can lead to losses.

Thirdly, diversification is key. It is generally recommended to invest in a variety of stocks across different sectors and industries to minimise risk.

Fourthly, research and due diligence are vital. Before investing in a particular stock, thoroughly research the company, its financial health, and its prospects for future growth.

Fifthly, consider using a brokerage account to invest in stocks. A brokerage account offers flexibility, as there are typically no income restrictions or funding limits, and you can use the assets for any purpose at any time without early withdrawal penalties.

Lastly, remember that investing in stocks carries risk, and there is always the potential for losses as well as gains. It is essential to carefully consider your risk tolerance and consult with a financial professional before investing.

Invest in real estate

There are many ways to invest in real estate, from owning physical property to using online crowdfunding platforms. Here are some options to consider:

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate income-producing real estate, such as office buildings, retail spaces, apartments, and warehouses. They are traded on major exchanges like stocks, and investors can purchase shares through brokerage accounts. REITs are required to pay out a large portion of their profits as dividends, making them a common investment choice. They are also a more affordable way to add real estate to your portfolio.

Crowdfunding Real Estate Platforms

These platforms allow investors to pool their money to fund specific real estate development projects. They offer diverse opportunities for a relatively modest investment. However, investors should be aware of fees, minimum investment requirements, and the potential illiquidity of these investments.

Rental Properties

Investing in rental properties can provide a steady cash flow and the potential for appreciation over time. This option suits individuals with DIY skills and the time to manage tenants and maintenance. It requires a substantial upfront investment and can be labour-intensive, but it can also be leveraged to acquire more properties and generate multiple income streams.

Flipping Properties

This strategy involves buying undervalued properties, renovating them, and selling them for a profit. It requires significant experience in real estate valuation, marketing, and renovation. It can be risky, as it may be challenging to swiftly sell the property, and renovation costs can be higher than expected.

Real Estate Investment Groups (REIGs)

REIGs are ideal for those who want to own rental real estate without the hassle of hands-on management. They are similar to mutual funds, where a group of investors pools their money to purchase rental properties. A company manages the properties and conducts tasks such as maintenance and tenant interviews in exchange for a percentage of the rent. This option provides income and appreciation potential with a more hands-off approach.

Invest in yourself

Investing in yourself is a sure-fire way to reap returns on your investments. It is about actively working towards your personal growth and well-being, such as learning new things, honing your skills, or ensuring your mental and physical health are in check. Here are some ways to invest in yourself:

Embrace Lifelong Learning

Education does not end in the classroom. You can always build your skill set and feed your passions through lifelong learning. There are many ways to access new information, such as online courses, money tips, resources, and tools. You can also learn more about budgeting, paying off debts, planning for retirement, or credit.

Prioritize Your Mental Health

According to a 2018 study, 44% of Canadians believe their financial state impacts their mental health negatively. This year, make your mental health a priority by checking in with yourself regularly to manage stress levels and prevent burnout. Give yourself permission to take a break, make mistakes, and set boundaries.

Find a Financial Mentor

Find a financial mentor to help you navigate your money and get closer to reaching your financial goals. A good financial mentor will help you see your financial worth and all that you are capable of.

Keep a Journal

Journaling is a great, safe space to reflect, plan, visualize, and forgive. There are many benefits to journaling, such as managing stress, identifying issues, and solving problems. It is also a great place to practice gratitude and set goals.

Break Bad Habits

Make a list in your journal of all the reasons why you want to break a habit and the steps you will take to get rid of it. For example, you could replace a negative habit with a positive one. It will take time and perseverance, but you will feel much better by the end of the year.

Cut Out the Clutter

Go through all the social media accounts you follow and pare them down to only the ones that inspire you, make you laugh, or educate you. Do the same with the people, items, food, and habits in your life to brighten and lighten your year.

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