Just Closed A Loan? Smart Ways To Use Extra Money You'll Save Every Month
If you have high-interest debts like credit card outstanding or personal loans, use your savings to pay them off early.
The repayment of a loan, whether it's a housing loan, a personal loan, or an auto loan, is a big financial accomplishment. After having paid EMIs for months or years, the feeling of relief that you don't have to spend that amount each month anymore could be reassuring for your financial security.
But once a loan is closed, one question that comes into everyone's mind is what to do with the money you won't be spending each month anymore. It could be tempting to increase lifestyle expenses with more money in hand, but some smart decisions can contribute significantly towards creating a sound financial future.
Save Towards Emergency Fund
First of all, keep an emergency fund. It is best to set aside three to six months of necessary monthly expenses. Use the savings from EMIs and start a fund. If you already have one, invest this amount to build it up if it hasn't yet reached the predetermined target. Building an emergency fund allows you to remain prepared for unexpected incidents like medical expenses or loss of a job.
Pay Off High-Interest Debts
If you have high-interest debts like credit card outstanding or personal loans, use your savings to pay them off early. This reduces stress and saves you thousands in interest. Debt repayment is one of the quickest ways of improving your financial health.
Investments
After securing your emergency fund and paying off high-interest loans, invest the surplus funds. Mutual funds, SIPs, fixed deposits, or even retirement savings plans could be suitable options. Compounding interest over a long term can help small monthly investments grow significantly over the years.
Plan For Short- And Medium-Term Goals
If you have goals like a child's education, buying a vehicle, or going on a dream vacation, spend a portion of your savings on those. Planning in advance helps you achieve your goal without compromising your future wealth.
Reward Yourself
Finally, it is okay to enjoy the sense of relief as well. You can spend some of your savings from EMIs on yourself, like a weekend trip, a hobby, or a big purchase, without compromising your financial goals.
In short, the money that you save after a loan closure can be a foundation for financial security and wealth creation. With savings, servicing of debt and investments taken together, you can utilise this amount to build a sizable corpus.
