‘Money buys food, clothing, and shelter’ – You may have heard this statement more often than not.  However, isn’t life worth more than a few clothes or food? As your career grows and you add more money and incentives into your account, you might feel there is scope to fulfill more desires in life. 

Moreover, when you get unexpected surplus money in your bank account, say from the sale of disputed ancestral property; there is a chance that you may decide to splurge your entire surplus earnings on trivial things such as shopping or throwing lavish parties, instead of investing the money smartly in liquid funds to secure your future goals. 

Whenever you have an unexpected surplus of money, it is crucial that you know what to do and what not to do with the amount. Here is a breakdown of the do’s and don’ts to help you make sure that you do not waste your surplus earnings. 

Do’s 

• Deal with Your Present Debt

No one likes to carry financial debt over their shoulders. However, it often happens that while taking care of your lifestyle, you may have to borrow money from friends or a bank to suffice your expenses. Over time, when you are unable to repay the money borrowed, your debt continues to pile on and increase your financial liability. 

Therefore, when you have any surplus money, you must use it to repay your existing debts first. Whether it is the money you borrowed from friends, any loan, or your credit card bills – clearing off any liability will not only help you save the interest accrued on the debt amount but will also give you the much-needed peace of mind, knowing that you are debt-free.  

• Invest in Different Financial Assets to Plan Your Future

While keeping any additional earnings in a savings bank account has been the norm, it is prudent that you know – there is no significant capital appreciation earned on your savings. In other words, your money will continue to accumulate up and, until you are putting your contributions month after month. 

On the other hand, when you decide to invest your surplus earnings into different financial assets, you can make sure that your money grows manifolds with time. 

Depending on your risk preference and financial needs, you can either invest in market-linked equities that have a high-risk component or in liquid funds, which are comparatively less risky. If you prefer diversifying your investment portfolio, investing in a mutual fund is yet another option for you. 

overall, it is crucial is that you get a considerable return over the investment you make with the surplus.

Don’ts 

• Buy Things You Do Not Need

Whenever people have an unexpected surplus of money, they often spend it all on trivial pursuits, such as shopping, buying eccentric décor items or lavish dinner parties. It is, however, prudent that you utilize the surplus wealth to suffice your needs first instead of your desires. For example, there is no point in buying a new, luxury sofa for your home if it already has a good one. Instead, use the money to start an education fund for your child. 

•  Investing Money Without Assessing Risk 

Having surplus money does open several investment opportunities, both traditional (such as PPF and NPS) and contemporary (mutual funds and liquid funds). However, it does not mean you should invest your money in every instrument you can lay your hands on without assessing your risk appetite or financial needs. 

Take the case of an investor, Mr. Gupta, who purchased shares of a few listed companies he knew little about. He did this just because he could afford it. His lack of knowledge and experience of stock markets meant that he had to lose a significant portion of his investments. Eventually, Mr. Gupta was disillusioned by the whole idea of investments and advised everyone against it. 

It is essential that you learn from other’s mistakes and invest money in the field or avenues you know well about. If you haven’t made any long-term investment previously, start small with liquid funds or ULIPS, and learn how the market functions first.

Overall, having surplus money in your bank account is a good thing; however, you need to utilize it well. By keeping in mind these do’s and don’ts, you can make sure that you maximize your earnings and take care of your present-day and future needs.