What to do with extra money


I guess I have what you might call a “good” problem. After years of hard work and budgeting, I finally paid off my student loan. I feel pretty comfortable living within my budget as it exists now, which means I have an extra $400 per month, which would normally go towards my student loan. I have several ideas (and fantasies) about how to spend it, but my financial conscience is telling me to do something wise. You’re the expert, what should I do?

Peter C.
Brackley Beach, Prince Edward Island

Hi Peter,

Congratulations on tackling your debt. Normally I spend a lot of time telling people how they can get to where you are now. We hear from a lot of people in their 20s and 30s who are struggling with student loan payments; recent reports show that half of Canadians need to rely on student loans, and forty per cent of students expect to have more than $25,000 in student debt. You’re proof that there is light at the end of the tunnel, if you buckle down and budget.

Because you have lived within your means, and accomplished your goal of paying off your student loan, you now have choices. Liberating isn’t it? One choice is to continue down your road of budgeting and goal setting so you can get ahead. Another choice is to live like you have won the lottery and end up in debt. Or some variation of the two. And since you asked for my advice, let me throw in my two cents: If you fail to plan, you plan to fail. Don’t think of your new cash flow like it’s a $400 gift card that you can blow every month.

Adjusting your budget and continuing to carefully plan your finances will likely help you get more out of your money in the long run. With that in mind, here’s some advice that might help guide your planning:

  • Keep paying down debt – I noticed you said you paid off your student loan, but you didn’t say you were debt-free. Few Canadians are. It would be a great idea to roll the extra cash toward another debt. A monthly injection of $400 will help you pay it off faster, which will then free up even more money. Take a look at your other debts and see which ones have the highest interest – target them first. Credit cards are probably a good place to start.
  • Save, save, save – Alright this might not be the most exciting option, but building a healthy savings account is always important. Padding your savings will come in handy in a number of ways: you can build a rainy day fund to protect against unemployment or a reduction in income; you could use it to build a down payment that you could put towards a home; you could make a vehicle purchase in cash and avoid interest; the possibilities are endless.
  • Invest in the future – You may be many years away from retirement, but it’s never a bad idea to get ahead of the game and start investing in a Registered Retirement Savings Plan (RRSP). Even if you’re only making small contributions every month, it’ll go a long way in the future. The same goes for a Registered Education Savings Plan (RESP) – if you have children, you should think about making small contributions every month that will add up by the time your child enters post-secondary school.
  • Remember to be good to yourself – You did earn this new monthly windfall, and it is important to reward yourself every now and then. Too often, people think of budgets as limiting and restricting, when often they are the opposite. You can safely budget a reasonable amount of money so that you can treat yourself, worry-free, from time to time. You want to maintain good morale and reinforce that budgeting has positive results!

Once again, Peter, congratulations on freeing yourself from student debt. You are well on your way to a strong financial future. Keep up the good work and continue making the right decisions!

Jeffrey Schwartz
Executive Director

Jeffrey Schwartz is the Executive Director of Consolidated Credit Counseling Services of Canada and President of the Credit Association of Greater Toronto (CAGT).