Having enough cash available in a primary checking account for regular expenses and emergencies is smart. However, keeping too much money in that account may not always be the best option. Depending on personal circumstances and goals, there may be other ways to put extra cash to use to improve an individual’s financial situation and future.

Start a Spending Log and Set a Budget

If there is a specific and accurate household budget, it may be easier to pinpoint exactly where money is being spent. For example, keeping a log for at least three months that tracks monthly bills, random purchases, and automated expenses will identify where little shopping trips are adding up. It is essential that the log also accounts for occasional costs like annual fees or memberships that one may only pay every three, six, or twelve months.

Remembering these will help determine how much should be held in the account, with a little extra cushion, for regular expenses. Then it can be determined how much of the excess funds can be used in other ways.

Increase Your Emergency Fund

An emergency fund is important for every household. Setting aside six months, or more, for living expenses can offset emergency expenses. Anything from a job loss to unplanned bills can turn a household’s finances into turmoil. An emergency fund eliminates some of this risk. Using a savings account means the money can accrue interest but still be easily accessible if an emergency does arise.

Pay Off Debt

Credit cards, loans, or other debt can hinder financial freedom. Instead of continuing to make minimum payments, those with enough extra money in their checking account can start paying down debt.

Tackling high-interest debt first will help prevent further debt from accruing. Then, when one debt is paid off, move on to the next. As monthly payments are freed up, the account owner now has more money to put into savings, invest, or otherwise put to work for their financial security.

Increase Investment Contributions

Another way to make extra money work for you is through investments. If personal debt is paid off and there is a solid emergency fund, increasing investment contributions may be a wise decision. Contributions to increase can include employer-sponsored 401(k) accounts or an individual retirement account (IRA).

Even a modest contribution adds up, but account owners may wish to increase their goal as they have more money to invest. Other types of accounts to consider are health savings accounts (HSAs) or educational accounts like a 529 plan. Finally, consulting with a financial advisor may be wise for choosing the best options for individual circumstances.

Short Term Savings

Sometimes people come into money unexpectedly or through emotional or traumatic circumstances, such as an inheritance or a settlement from an accident. When there is uncertainty about how to best use the funds, it can be wise to put it to work through short-term saving in a certificate of deposit (CD), money market account, or another interest-bearing account. The funds will accrue interest while the owner determines how to use or invest the money in the long term.

Make Money Work For You

When there is additional money in a checking account beyond what is needed for regular expenses, it may be best to use it for other purposes. Making a spending log and a realistic budget can begin the process. Then excess funds can be used for more productive purposes. Whether this is putting it into an emergency fund, savings, or investment contributions, there are numerous relatively simple ways to use the money to improve one’s financial situation.