Since people are mostly staying at home for almost two months now because of the protracted lockdown, other things remaining constant, they are saving up a lot. Daily commute expenses, eating out, movies, traveling and even online shopping have come to a complete halt. The COVID-19 pandemic, among other things, has ensured that we cut down on discretionary expenses to a bare minimum and learn to live without it.
If your income has remained the same, it means you have a surplus. In that case, you should put that money to the best possible use, rather than blowing it up when you get a chance to spend it. Here are ways to put that extra money to good use.
1. Build Or Boost Your Emergency Fund
The first thing you should do with extra cash is to build an emergency fund or add to it if you already have one. While three months of regular expenses are the thumb rule, it is always a good idea to perk up your emergency fund to up to six months of expenses. Remember to factor in one-time payments like insurance premiums and school fees. The current situation teaches us that having an emergency fund is a must and it is the first step towards a proper financial planning.
2. Pay Off High Cost- Debt
If you have high-cost debt like credit card dues or personal loans, use the extra cash to pay it off. Not only are you paying very high-interest rates of these loans, but any default will also adversely affect your credit score. So make sure you clear such debts as soon as possible, because even if you have invested money, you would earn fewer returns on it compared to the interest rate you are paying. However, make a point to check prepayment penalties and then make a decision.
3. Save For A Short-Term Goal
List down all short-term goals. If you are planning to buy a house in the next few years, you would need to arrange for a down payment. If you are planning for a foreign vacation when things are back to normal, you would also need funds, so that you do not take a loan and get buried under it. The extra cash you are saving now can go to be allocated to these short-term goals.
4. Save More For Retirement
Now we look at the long-term goals. If you do not have to worry about the points 1, 2, and 3, see how you can give an extra kick to your long-term goals and the cash you have at your disposal. You may want to invest a lump sum or increase your SIPs so that your goals. One way to go about it is to evaluate your long-term goals like retirement or saving for your child’s education and see how you can accelerate your investments towards those goals.
5. Spend On One-Time Expenses
If you have been planning to redo your kitchen or install a solar panel in your house, you can put your extra cash to good use. You can even use it to cover costs of home repair and maintenance, which you have been postponing for a while.
You can of course splurge and buy the gadget or the watch you have been craving for. But before you do that ensure you take care of more urgent needs.
