What To Do With Extra Money: Save, Invest or Spend?

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You’ve earned a bonus at work or perhaps you’ve received a large tax refund. Before you have time to squander the money, it’s a good idea to pause and make a plan. How can this extra cash best fit into your long- and short-term financial goals?

Depending on your current situation, you might put the money toward high-interest debt, save it for a specific goal, add it to your emergency fund or invest it. It’s also OK to treat yourself, but be mindful of your spending so you don’t go overboard.

Here are 12 smart suggestions to spend, save or invest your extra cash.

1. Pay Down High-Interest Debt First

If you have high interest credit card or personal loan debt, take steps to pay that off first. Paying down debt is like money in the bank — a guaranteed return. If you pay off a credit card that charges 17% interest, you’re earning a 17% return through the money you’re saving.

Debt Snowball Method

You can choose the debt snowball method, where you start by paying down the credit card or loan with the lowest balance. That early victory will give you the confidence and encouragement to continue with your plan.

Debt Avalanche Method

Alternatively, you can use the debt avalanche method, where you start with the card with the highest interest rate, regardless of the balance. This makes sense because you’ll start saving more money faster on interest charges.

Whichever method appeals to you, get started with any extra cash you have. Make sure to continue making the minimum balance on your other loans and credit cards.

2. Build or Refill Your Emergency Fund

If your personal debt is under control and you’re not carrying any high-interest balances, focus on your emergency savings fund. Aim to have three to six months living expenses in an easy-to-access, high-yield savings account.

It’s important to have cash on hand for emergencies or job loss before you start investing in stocks, ETFs or other accounts. In a down market, you may not be able to liquidate your investments to pay for an emergency. Having savings set aside adds to your sense of security, which makes other financial decisions easier.

3. Boost Your Retirement Savings

These are some retirement savings options that may be helpful:

401(k)

Once you’ve got a decent amount in savings, boost your contributions to a 401(k). If your employer offers matching funds, this is free money, tax-deferred.

Individual Retirement Account (IRA)

If you don’t have access to a 401(k), or you’ve already maxed out your contributions, consider opening an IRA or Roth IRA. Like a 401(k), an IRA is tax-deferred. By the time you reach retirement, it’s likely the taxes you pay on withdrawals will be taxed at a lower rate.

Roth IRA

A Roth IRA is funded with after-tax contributions. You can make withdrawals tax-free if you’ve had the account at least five years, although early withdrawal penalties apply on earnings if you are younger than 59 ½ and don’t meet certain exemption requirements.

4. Start or Grow an Investment Account

While retirement account returns are fairly stable and tailored to long-term growth, investments like index funds, ETFs and even stocks can provide greater returns and more liquidity before retirement age. Keep in mind that index funds and ETFs are already diversified, making them a good investment for beginners.

Open a brokerage account for flexibility and consider a platform that uses robo-advisors if you want automated, hands-off investing. Remember, any money in investment accounts should be money you don’t plan to touch in the short-term and can afford to lose if the market drops.  

5. Save for a Big Goal

If you have an important goal in mind, such as buying a house, a new car or splurging on a vacation, you can use extra cash to jumpstart your savings. Keep your goal in mind and create a timeline so you can stay on track with your savings.

Use Automatic Transfers and Savings Buckets

Say you’re planning a Disney vacation in December 2026. That gives you roughly 18 months to save. If you expect to spend $8,000, you’ll have to set aside at least $444 per month. Automate transfers weekly or monthly to stay on track and use a savings account with “buckets” or labels so you can differentiate between your different savings goals.

Set Up a High-Yield CD

If you already have the lump sum cash, consider investing in a high-yield CD so the money can continue to grow and you won’t be tempted to spend it on other things.

6. Open a High-Yield Savings Account

High-yield savings accounts are great to save cash for emergency expenses or short-term goals. Many online banks offer interest rates of 4% or higher. Be sure to compare interest rates, APYs, and requirements to earn the highest APYs at the best online bank accounts in 2025.  

If you don’t need access to the money right away, you might earn higher returns with a CD.

7. Invest in Yourself

Warren Buffet has said, “Anything you invest in yourself, you get back tenfold.” With this in mind, consider spending your extra cash on a course or certification. You might also consider investing money to start a side hustle or a small business.

If you already have a small business or an income-producing hobby, upgrade your tools or workspace so you can be even more productive.

8. Give Back or Support a Cause

Money donated is never wasted – you’ll reap the rewards in good feelings — and potential tax deductions. Consider donating a portion — or all — of your windfall on a trusted charity or local non-profit. If you can afford it, set up a monthly, recurring gift to a charity of your choice. To find a reputable charity, check out CharityWatch.org.

If you can’t afford a cash donation, consider volunteering your time and skills locally. Places like food pantries and homeless shelters are often flooded with volunteers during the holiday season, but struggle the rest of the year.  

9. Treat Yourself–Without Going Overboard

Living a strict, frugal lifestyle often requires self-discipline. When that discipline runs out, especially if you are tired or stressed, you might be tempted to splurge. It’s similar to how someone who follows a strict diet may be tempted to fall off track and overeat. To avoid this, allow yourself room in your monthly budget for affordable treats.

“[P]lanned indulgence is part of a healthy financial mindset,” Olle Pettersson, personal finance expert and editor at Finansplassen, previously told GOBankingRates. “If you’re typically frugal, giving yourself permission to enjoy a special treat or experience once a year isn’t reckless but realistic.”

Be careful if those one-time splurges turn into “lifestyle creep,” however. A once-a-month dinner at your favorite restaurant is an enjoyable and reasonable expense. But if you’re dining out every week at the expense of your savings goals, it can derail your financial future.

10. Save for a Child’s Education

If you have young children and some extra cash, consider opening a 529 plan or a custodial account. This can give your kids a headstart on their financial future, as it may reduce or eliminate student loans. You can gift up to $19,000 per year or $38,000 per married couple with no gift tax. In 2025, you can “front-load” the 529 and gift up to $95,000 per person, per beneficiary, tax-free, according to Fidelity. Com.

If the beneficiary doesn’t use the money for college, you may be able to transfer it to someone else with no tax ramifications. You can also transfer it to a Roth IRA to jumpstart the beneficiary’s retirement savings. Some states offer additional tax perks for 529 contributions.

11. Explore Real Estate or Passive Income Options

Just like investing in yourself through a course or business tools, investing in real estate or other passive income opportunities also reaps long-term rewards.

If you’re willing to put in some work, consider rental properties. Otherwise, look into REITs or crowdfunding platforms like Yieldstreet, Fundrise or the Jeff Bezos’ Arrived platforms. These require a smaller upfront investment and less work than buying and managing a rental property.

As with other types of investments, only use cash you can afford to tie up long-term and potentially even lose.

12. Do Nothing (Temporarily)

If you’ve just come into a lot of money through an inheritance, lottery win, tax refund or a bonus at work, it’s okay to pause and think. Park the money in an FDIC-insured, high-yield savings account until you gain clarity on the best way to spend or invest it. Speak with a financial advisor and tax accountant about the ramifications of any decision you make.

Final Tips for Making the Most of Extra Cash

However you choose to spend or save your money, make sure your choices align with your values. Don’t rush; the money is safe in a high-yield savings until you determine the best way to maximize your investment. Revisit your plan quarterly to make sure your money is still working for you in the best way possible.

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