There’s a good chance at this time of year that you could end up with some extra cash in your pocket. It might be a bonus from work, money from a seasonal job, or a gift from a family member. For me, a Christmas doesn’t go by that I don’t get a cheque from my grandmother.
You could use the money to buy something fun for yourself, take your partner out for dinner, donate to charity, or regift it. You could bet it all on black. You could have a party with all of your friends or buy yourself a year-long supply of mac and cheese. There are endless fun things you can do! But this is a personal finance blog, and my job is to lead you away from the glamour of the yellow brick road and down the beige path of responsibility. So come with me on a tour of five responsible things you can do with your holiday cash.
Kick start your RRSP
If waiting a few dozen years to spend your holiday cash sounds like fun, I recommend investing it in a registered retirement savings plan (RRSP).
It’s really easy to put off saving for retirement, and using found money is a great way to get the ball rolling without upsetting your monthly budget. Compound interest means your money will be worth lots more when you retire, and you’ll get a credit on your taxes in the coming year for making the contribution. Think of it as Christmas in April.
Load up your TFSA
If you’d rather put your holiday cash toward a short-term goal, consider investing it in a tax-free savings account (TFSA).
TFSAs are a great way to invest your money because you can choose from a variety of investments, and you don’t have to pay taxes on any interest you earn. Unlike an RRSP, you can withdraw any time without penalty. That makes TFSAs a great way to save for near-term goals, like a new car or a vacation. Or, you can use your TFSA to save for a rainy day.
Give yourself the gift of a high-interest savings account
If you’re really non-committal, you can use your holiday cash to fund a new high-interest savings account.
The everyday savings accounts offered by most big banks pay hardly any interest at all. There are some that pay as little as one-twentieth of one percent interest – you’d be better keeping the money under your mattress (but please don’t).
Instead, save your holiday cash in a high-interest savings account. The best accounts in the market currently pay about 2.30% interest, which is a decent return on investment considering you can withdraw your money for any reason at any time without penalty.
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Pay down your credit card debt
They say ‘tis better to give than receive, and if you’ve been particularly generous this holiday season that might mean your credit card is at its limit. And a gift you want to avoid giving is a big fat interest payment to your credit card provider.
Canadians are expected to spend an average of $1,563 on the holidays this year. If you put that amount on a credit card and only make the minimum payment, it would take over 12 years and cost $1,362 in interest on a card charging 18%. Carrying the balance for a single month will cost $23.45 – more than enough to eat up any credit card rewards points you might have earned. If you’ve got credit card debt, use your holiday cash to pay it down.
Start that side hustle you’ve been thinking about
A side hustle – a gig you do on the side to earn extra cash – is a great way to fund all of the above, all year long. Many side hustles can be started for free, but if you want to do something that needs a bit of startup capital, your holiday cash can be a great source of a first investment.
For example, if you wanted to start a snow removal business, you could use your holiday cash to pick up a used snowblower to make the work easier. Or, if you wanted to start a business repairing old snowblowers, you could buy the tools you need to get started.
Think of it as an investment in yourself. If you’re committed to starting your business, that piece of equipment will pay for itself quickly and (hopefully) last for many years to come.
Do something nice for yourself
I’m not suggesting that every nickel of your holiday cash has to be used responsibly. If the idea of holiday cash is to use it to do something nice for yourself that you wouldn’t have done otherwise, any of these ideas will satisfy that requirement just as well as any frivolity you can think of.
Whether you choose to save for the future, pay down debt or invest in yourself, you’ll be doing yourself a favour.
Go ahead, be responsible. You’ve earned it.
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