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5 Things to Do with Your Holiday Cash

The Holidays are officially behind you; you’re back at the office or school (a few pounds heavier and, if you’re lucky, a few dollars heavier as well) and getting back to routine. Sure, you might have made some New Year’s Resolutions and are sticking with them. If so, good for you! If not, well, you’re not alone.

But, that’s OK. If you received some extra cash from family on Christmas – or if you were lucky enough to earn a Christmas or year-end bonus at work – you might be struggling with what to do with it.

Fear not – we’re here to help. Here are five ideas for things you could do with your holiday cash.

Put it toward debts

Sure, it may not be the sexiest thing to do with a financial windfall, but it might just be the most prudent.

The average Canadian has $22,800 in consumer debt (excluding mortgages), according to a debt report by Equifax Canada published in Q3 2018. That may seem insurmountable to some, but every lump sum contribution will get you closer to paying that off – while at the same time cutting down on the interest you would have to pay on it.

To simplify things, let’s assume you have $1,000 in credit card debt at an interest rate of 19%.

If you were to pay the minimum payment of, say, $10 per month, that $1,000 debt would take 10 years and five months to pay off and cost a total of $1,889.40!

Now, if you had an extra $1,000 kicking around – say from Christmas or as part of a bonus – you could pay that entire balance off and stop worrying about it.

Sounds enticing, right?

Create an emergency fund

Maybe you don’t have any debt and are wondering what financially sound decision you can make with your excess cash.

Another option is to start, or top-up, your emergency fund.

For the uninitiated, an emergency fund is a cache of, well, cash, that is put aside for a rainy day. Be that an illness that takes you out of work, job loss for any other reason, dental, or pet emergencies, or any other unplanned costs.

Your emergency fund should be easily accessible (i.e. liquid in nature); so, you can store it in a chequing or savings account.

Advice on how large your emergency fund should be differs, but most experts suggest having three months worth of wages saved in case of emergency. Something is better than nothing, though – so why not contribute your new financial windfall to yours?

Contribute to your registered retirement savings plan

The RRSP deadline of March 1 is fast approaching, meaning you should act now if you want to contribute.

There are several benefits to contributing to an RRSP, including lowering the amount of taxes you have to pay for the previous year (if the contribution is large enough, this can even lower the tax bracket you’re in), earn you a tax refund, and grow your money in a tax-sheltered account for retirement.

Set a new savings goal

Most people think savings in two categories: Short- and long-term. However, you may have more success in meeting your goals if you break your short-term savings goals up as well.

For example, keep one account for big-ticket items, another for trips, and a third for gifts. Sometimes it’s easier to save for certain goals if you compartmentalize that way. So, why not open a new savings account or GIC for a new savings goal?

That way, you can get a head start and maybe even become more enthusiastic about meeting that goal.

Spend it

Sometimes the best thing to do with extra cash is the most fun. Say you’ve hit all your savings goals in 2018, have paid off all your debt, and have already built a hefty emergency fund.

Rewarding yourself with a trip, new guitar, some new clothes – whatever makes you tick – for a year of prudent financial management may be just what you need to continue making good money decisions in 2019. If you feel this applies to you, go ahead and treat yoself.