Being good at spending money is an excellent quality to have. The ability to live below your means is a skill that allows you to have more control over your finance. Wise spending ensures you avoid unnecessary debt and gives you peace of mind knowing you don’t have pilling bills. This can, in turn, grant you more financial flexibility.
But being a good spender does create another “problem” to be solved. What should you do with the surplus or leftover money from your budget?
As you know, a budget is meant to help you control your expenses and keep track of your money. Sometimes, you might run a budget surplus and have money after paying all bills and expenses. As such, you need a plan to spend this extra cash, or you might be tempted to splurge on things you don’t need.
And splurging isn’t always the best option. You have worked hard to control your spending, and now it's time to make even better decisions and put your money to the best use. So, here are five financially savvy ways to use your leftover budget money.
How solid is your emergency fund? This is money you set aside to help you foot unexpected expenses such as medical bills or car repairs. Importantly, it can come in handy if you lose your income, as it will help you stay afloat until you are back on your feet.
As a rule of thumb, a solid emergency fund should cover six to twelve months of your living expenses. You should consider topping it up using your budget’s leftover money if yours can’t.
Having an emergency fund means you have a supply of cash ready, so you don’t have to dig into your savings or go into debt if you encounter an unexpected expense.
To make this more effective, consider saving your emergency fund in an accessible savings account or a money market fund. That way, you can potentially earn a higher interest rate on your money while retaining the convenience of quick access to it.
A sinking fund is a strategic way of saving money for a large purchase or future expense. It involves setting aside a specified amount monthly to fund that specific purchase or expense. For example, you could have a sinking fund for your car's annual maintenance, your laptop upgrade, your child's following-term school fees, or your next vacation.
Sinking funds are a great way to save money for large expenses without having to come up with the entire amount all at once. They can also help you stay on track with your financial goals and avoid debt. If you have been thinking of a large purchase, you can use your surplus budget money to start a sinking fund to buy that item.
Here's how to go about that:
First, identify the specific expense you're saving for, next estimate the total cost of the future purchase, and then determine the time frame in which you want to achieve your financial goal. Since the sinking fund will require you to top it up monthly, ensure it fits your budget. If you are expecting future budget leftover money, a sinking fund can help you give it a definite purpose.
One of the best ways to utilise your leftover budget money is to expedite your financial goals. Instead of letting those additional funds go to waste by splurging, use them strategically to top up your investments or savings. Another benefit of this strategy is when you invest/save your leftover budget money; you stand to make profits in the form of interest, dividends or capital gains.
Here are three places you can direct them:
Kids' college fund: Funding children’s education can be an expensive exercise, especially if you are planning to see your kids through university. Every extra contribution can make a difference. If you can manage an additional Ksh5,000 per month, it will accumulate over time and aid in reaching your target.
Home down payment: If you are saving for a down payment on a house, allocating extra funds to your savings will help you reach your goal faster. This is particularly crucial if you have been working with a tight budget.
Retirement Savings: Regardless of age, it is never too early to begin saving for retirement. When you channel the extra funds into your retirement savings, you can ensure you will have sufficient money to live comfortably during your sunset years.
This list is not exhaustive, as different individuals have diverse goals. However, to make the most effective use of your extra cash, it is essential to prioritise according to your needs or consider topping up accounts where you are falling short of your savings goals.
If you have any outstanding loans, you should consider using your leftover budget money to pay them off, as it can help reduce your debt burden.
One of the key factors for consistently coming in under budget each month should be the ability to make extra payments toward debt. This becomes particularly important now with the rise in interest rates, as your credit card, personal loan, or logbook loan may become even more expensive if your interest rates are variable rather than fixed.
Using any extra cash to repay existing debt can lower your overall debts and reduce future monthly debt payments. This can have a snowball effect, freeing up more money in your budget in the months ahead. However, consider consulting your lender before paying extra towards your loan, as some might penalise you for doing so.
Investing in yourself is a consistently valuable and impactful choice throughout your life. When you use your leftover budget money to invest in yourself and your career, you can gain skills to transform yourself into a well-rounded, capable, knowledgeable, and employable individual.
Taking a short course from a reputable e-learning platform that offers a certificate upon completion is the best way to achieve this. Online learning has increasingly become affordable, and if you have an extra Ksh3000 or Ksh5000, you can enrol in an online class and earn a professional certificate from recognisable platforms, such as Udemy and Coursera.
Taking online classes can serve as a testament to your value as an employee. It demonstrates your commitment to continuous professional growth and development, which can be beneficial when negotiating for a raise, promotion, or changing employers.
If you are an entrepreneur or thinking of starting a side hustle, online classes can be valuable. Subjects like marketing and accounting can provide the necessary skills and knowledge to help you grow your business and ensure profitability.
After paying all your expenses, having surplus funds in your budget can bring unexpected joy. And it can be tempting to spend your money on a fancy item or a quick road trip. But if your goal is to better your financial situation, it’s important that you put that money to good use.
Budgeting is not a walk in the park. Therefore, if you have found a way to cut expenses and live under budget, you should make it a habit. Having a buffer between your income and expenses gives you financial flexibility, and knowing that you have control over your finances and are consistently spending less than you earn can alleviate a significant amount of financial stress.