At some point, you might be fortunate enough to find yourself with some unexpected cash. Lucky you! It’s a nice situation to be in, and there’s great potential to get a financial upper hand based on your current finances.

You don’t want to let any extra money sit around in a low-interest account. Instead, put it to work for you. If you’ve got access to a financial planner, the best advice is always to get a custom plan for your situation. If you don’t, then these foundational tips are designed to make the most sense for most Canadians or if you’re new to financial planning.

1. Pay down high-interest consumer debt

Think of high-interest debt as the enemy of your future savings. If you’re carrying credit card balances each month, the money you’re spending now on interest payments is robbing you of potential positive interest you could be earning on investments.

The slippery slope of consumer debt is thanks to compound interest. (On the flip side, compound interest working in your favour helps you grow money exponentially without having to do anything at all. We’ll get to that in a minute!) The more you let your debt grow, negative compound interest adds even more debt. You want to avoid this at all costs. That’s why the best thing you can do for your financial security is to pay down as much of that debt as soon as you can. 

●       If you’ve got more than one credit card, pay off as much as you can from the card with the highest interest rate.

●       If you’re able to pay off a high-interest card, now’s the perfect time to decide if you need it. Many retailer-based and other niche credit cards have exceptionally high interest rates. Sure, points or discounts are great, but only if you can pay your balance in full each month. If the card is at $0, ask yourself honestly if you need it or if you’d benefit more from closing the account entirely.

●       If you’ve got a relatively small balance on one card (say, less than $1000) it also makes sense to pay that off completely even if it’s not the highest interest rate. Again, you’ll get a card down to $0 that you can then reconsider if you even need it. At the same time, you’ll get a satisfaction boost from having paid off one of your debts entirely.

2. Start or add to your emergency fund

Around half of all Canadians live paycheque to paycheque. Many of us are one unexpected repair or job loss away from not paying our bills. This causes stress and financial anxiety that impacts our overall health and well-being.

If your high-interest debt is under control, it’s time to make sure you’ve got a solid emergency fund built up. This safety net will not only protect you from unplanned financial needs but will give you significant psychological benefits, too. Knowing that you’ve got a bit of extra security can go a long way. This is where that magical compound interest we talked about before goes to work for you, instead of against you.

Keep your emergency fund relatively accessible, but not too accessible. You want to have the money close by, but not necessarily see it every day.

●       Open a high-interest savings account that’s separate from your everyday spending account. Shop around and if you find the best rate and a different institution, open it there to keep it even more out of sight.

●       If you’re working, set up automatic payments so that a portion of your paycheque is deposited right into your emergency fund account before you even see it.

●       In an ideal world, you’d have three to six months’ total expenses socked away in your emergency fund. If you can make that happen, great. For some people, that can feel unattainable, so worry less about the goal amount and focus instead on adding small amounts as much as you can. Even $20 each week will add up over time. Having some kind of emergency savings is better than having none at all.

3. Invest in a TFSA

A Tax-Free Savings Account is a powerhouse financial tool, especially if you’re just starting or want to invest but might also need access to your money before retirement. Unlike a Registered Retirement Savings Plan (RRSP), there are no tax penalties for removing funds from your TFSA if you need them. You get an outstanding balance between tax-free gains on your investment while not having it entirely as locked away as an RRSP.

If you’re opening a TFSA for the first time, you can begin with any amount of money. If you’ve already got a TFSA, then for 2021 your lifetime contribution maximum is $75,500. Adding to your existing TFSA or topping it up all the way is a great way to put your extra stash of cash to work while keeping it at the ready if you might want to access it shortly.

4. Treat yourself to a major (but well thought out) purchase

If you’ve got your financial basics taken care of, then you can have some fun. A little thought into your splurge can help make sure you get the most bang for your buck, 

●       Add it toward something you’ve been proactively planning or saving for in the past, like a dream vacation or piece of furniture you’ve had your eye on for a long time. This way, you know it’s not an impulse purchase.

●       Think of things that could help your work or family life run more smoothly, like a new vehicle, piece of tech, or something else that would have the double benefit of giving you the excitement of something new that you’ll also make excellent use of.

●       From designer bags to sneakers to works of art, lots of different items have investment or resale value down the road. Do a bit of online research, and you might be able to treat yourself now to something that will also appreciate in value in the long term.

5. Feel gratitude

The positive mental health benefits of taking a moment to say thanks have been well documented. When it comes to your financial health, feeling gratitude can help you make better decisions with your money, boost your productivity and feel like you’re “richer” than you are.

Wealth isn’t just about the number of dollars you have — it’s also about your overall health. Your emotional well-being is deeply tied to your relationship with money, and what it enables you to do with your life. Take a moment to appreciate that you’re in an enviable position. Feel good about taking the time to make smart choices on what you’ll do with your extra money, and pat yourself on the back for investing in your future.

Jeremy Elder is a Toronto-based content marketer and copywriter with over a decade’s experience telling stories for some of the world’s biggest brands. He’s an expert at finding WiFi wherever you least expect it.

Jeremy Elder is a paid Sonnet spokesperson.