7 Smart Ways to Invest Extra Money

Jessica A. in Texas says, “I’m a long-time listener and huge fan of your podcast! My husband and I are in our early 30s and have set ourselves up well financially. We have about $60,000 in cash sitting in a 0.4% 'high-yield' savings account. We think it could be doing more for us, but we’re not sure where to begin.

Our only debt is our mortgage and we pay extra toward the principal each month. We have a 12-month emergency fund, max out our workplace retirement accounts, and both max out our Roth IRAs every year. We’re not eligible for HSAs but contribute to a 529 savings plan for our infant.

Is there some way to invest our extra money that would earn a higher return? Should we open up a brokerage account, and if so, what types of investments should we buy? We’re not well-versed in non-tax advantaged accounts and would appreciate any resources you recommend for becoming more educated investors.”

Thanks so much for your great question, Jessica! You get a virtual high-five for accomplishing so much in your financial life at such a young age. You’re in an enviable position and are certainly asking the right questions.

Once you’ve covered the basics with funding your emergency savings and investing regularly, and you still have money left over, you have excellent options for growing it. In this post, we’ll cover what to do when your income increases or you receive a cash windfall and end up with extra money.

When you’re fortunate enough to have extra money to invest, I recommend first taking a holistic view of your financial life and reviewing your goals. Before making significant money decisions, it’s wise to consider what you genuinely want to accomplish.

For instance, should you create more security by increasing certain insurance coverages, open a college savings plan for your kids, buy a home, or start a business? Only you know the answers.

In addition, as your life changes, you may need more or less savings in the bank, updated emergency documents, or a new estate plan. As your income increases, the trick to building wealth is resisting “lifestyle creep” or spending more. If you earn more and maintain or decrease your expenses, you’ll reach any financial goal you dream about much faster.

Here are seven wise ways to make your extra money grow.

1. Max out a Roth IRA

I always recommend maxing out tax-advantaged accounts first and then putting money into taxable accounts. So, Jessica and her husband are smart to max out their Roth IRAs every year. It’s especially wise...

Keep reading on Quick and Dirty Tips