What to do with money

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If you’ve come into an unexpected windfall - whether from an inheritance, redundancy, or another source - you might be wondering what to do with the extra money.

Whether you’re thinking of saving for the future, investing in the stock market, or treating yourself to a holiday, we’ve put together some ideas to help you make the most of your money.

With so many ways to handle extra cash, it can be a bit of a minefield trying to work out the best option for you. But don’t worry—keeping it simple can help. Here are five things to do with money:

1. Spend your money
2. Save your cash
3. Pay off debt
4. Invest your money
5. Donate your money

Let’s take a closer look at each of these options to see how they might work for you.

If you’ve come into some extra cash, you could, of course, use it to treat yourself. Investing in things that bring you joy can be really rewarding. Whether it’s a new gadget, a stylish piece of clothing, or something you’ve had your eye on for a while, just make sure it’s something you truly love and can afford. Doing a bit of research to find the best price can help you get the most value for your money.

Alternatively, spending on experiences can be even more fulfilling. Imagine a memorable trip, a new hobby, or a special activity that you’ve always wanted to try. These kinds of experiences often create cherished memories that you’ll look back on fondly for years to come.

Putting extra money into savings can give you a vital financial safety net for emergencies and help you work towards your savings goals. Exploring different options beyond the high-street banks can help you find the best interest rates. There are plenty of savings accounts out there, so take the time to research and choose the one that fits your needs best.

If you’re dealing with debt, it can feel like a weight dragging you down, especially when you’re trying to save for something meaningful. It’s easy to feel frustrated if you get some extra cash and end up having to use it to pay off debt instead of saving for your dreams. While it might seem like you’re not getting anything tangible in return, tackling high-interest debt like credit cards or other loans can give you a clean slate from which to start using your money how you really like, and the peace of mind from knowing you’re completely debt-free may feel totally worth it.

Investing your spare cash can be a smart way to grow your wealth over time, as long as you’re comfortable with the risks involved. In Ireland, you have a variety of investment options to consider. You could buy shares in companies, invest in bonds, purchase property, or even explore alternative investment forms like commodities. However, the value of your investments can fluctuate, and there are no guarantees you’ll make a profit.

Donating to charities or causes you care about can be one of the best things to do with money. Whether it’s a small or large amount, giving to those in need or supporting causes you’re passionate about brings its own rewards. Plus, in Ireland, charitable giving can also offer some financial benefits. Through the Charitable Donation Scheme, you can get tax relief on your donations. This potentially lowers your overall tax bill. So it’s a win-win: you help others and get a tax break in the process.

Making the most of your spare money can really boost your financial health. But what’s the best way to use it? The right choice ultimately depends on your individual financial situation.

Here are some more detailed ideas for what to do with extra money. For personalised advice, you might also consider consulting a financial expert.

High-interest debt, such as credit card balances and personal loans, can really eat into your finances. Reports show that overall, people in Ireland spend over €12 billion annually on credit cards alone*. When deciding what to do with excess cash, experts often recommend focusing on paying down these high-interest debts first before building up your savings.

The reason? The interest rates on these debts are usually higher than what you’d earn from most savings or investments, so any gains you make from savings are effectively cancelled out. Indeed, some credit cards in Ireland charge rates up to 22.1% APR. By using your extra money to clear this crippling debt, you could save a significant amount in interest over time.

Paying off debt not only saves you money but can also reduce stress and improve your credit score. One strategy is to tackle the debt with the highest interest rate first, an approach known as the “avalanche method”. This approach helps you pay less interest in the long run. You could also consider “the snowball method”.

Having a financial safety net is key for managing unexpected expenses. An emergency fund is like a financial cushion that helps you cover unforeseen costs without resorting to overdrafts or credit cards. This can be helpful for situations like a car breakdown, a leaking roof, or even unexpected unemployment.

It’s generally helpful to aim for a fund that covers at least three to six months’ worth of living expenses. This amount might vary depending on your household’s total expenses, how many people are contributing to the household, and the stability of your income.

To build your emergency fund, you could start by setting aside a small, manageable amount in a basic savings account that offers some interest. Only use this fund for genuine emergencies, and try to replenish it as soon as you can if you do end up using it. This way, you’ll be prepared for future financial surprises without disrupting your long-term savings goals. A demand deposit account could be suitable for emergency savings, as you’ll still be able to withdraw funds as needed.

Depending on your particular mortgage terms and conditions, it can sometimes be worth putting extra cash towards the balance. You can make an extra one-time lump sum, or set up regular additional monthly payments. Either way, this often helps reduce your mortgage balance faster, which can save you a significant amount in interest over time.

The following table outlines how much time and interest you could save by overpaying your mortgage each month.

Based on a 20-year mortgage term with an interest rate of 3.6% and an outstanding mortgage balance of €200,000.

Source: Data from CCPC

Before you start, check if your mortgage lender charges a penalty for extra payments. Some lenders let you pay off a certain amount without any extra fees.

When deciding what to do with extra cash, think about your goals and what’s important to you. Are you saving up for something specific, like a wedding, a new car, or a holiday? Setting clear objectives can help guide your decisions.

Once you know what you’re saving for, choose the right type of savings account. For short-term goals, a demand deposit account might be best. You benefit from easy withdrawals and deposits while also earning some interest.

For long-term savings, like a house deposit or retirement, a fixed term deposit account could be more suitable. It generally offers a higher interest rate, though your money will be locked away for a set period.

Also, consider looking beyond local banks for better rates. European savings options can sometimes offer higher returns, so it’s worth exploring these alternatives to get the most out of your money.

If you don’t need your extra cash right away, you might consider investing it. This can involve buying stocks and shares, but there are a variety of options out there, including mutual funds and ETFs. When it comes to deciding where to save or invest your money, keep in mind that, while investing might offer higher returns, it also comes with significant risks.

If you’re interested in local options, you might consider investing in property. Some consider property investing as a way to beat inflation in Ireland, but it’s important to understand both the risks and potential rewards.

It’s worth remembering that in Ireland, any profits you make from investing are taxed at a steep 41% exit tax, which is higher than the deposit interest retention tax (DIRT) you might pay on regular savings interest.

When deciding what to do with money, putting it into your pension can be a tax-efficient choice. The government helps boost your pension contributions, so the more you invest, the greater your financial benefit.

The tax relief you receive depends on your income tax rate. There’s an overall maximum pension contribution in Ireland that’s tied to your earnings. This limit is currently €115,000 per year.

Another benefit of using extra cash for your pension is that any growth of your pension fund is always tax-free. Additionally, you can take a tax-free lump sum of up to 25% of your pension pot’s value. If you want to add more to your pension, you can make AVCs.

And if you’re not already contributing to a pension, you might be eligible for auto-enrolment into a pension scheme.

If you’re still wondering what to do with your money, it can be helpful to talk to an independent financial adviser.

They can provide personalised advice on various financial matters, such as planning for retirement and managing your wealth. They’ll also take a close look at your finances and suggest options that fit your unique needs and goals. While there is a cost for their advice, it could be a worthwhile investment if it helps you grow your wealth over time.

If you have extra cash—whether from your savings or a recent windfall—it’s worth exploring how much interest you could earn by placing it in a savings account. Raisin Bank makes it easy to compare different savings options from a variety of banks. Plus, unlike investments, your deposits are protected up to a certain amount by the particular Deposit Guarantee Scheme. Register for a free Raisin Account today to get started.

*https://www.rte.ie/lifestyle/living/2024/0130/1429385-a-financial-experts-tips-for-dealing-with-credit-card-debt/

This information does not constitute financial advice. You should always do your own research to ensure that your decision is right for your specific circumstances.