What should you do with extra money?

25 May 2023 by National Bank
Illustration of a bank jar containing pieces of paper with the words commission, tax refund, prime and bonus written on them.

Did you just receive your annual bonus, a tax refund or a big commission at work? Congratulations! If you are wondering what to do with this extra money, there are many options. It all depends on your personal and financial situation. Here’s an overview of the options and our expert advice to help you make the right decision.

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First of all, take the time to assess your personal and financial situation. Next, try to anticipate what you expect to happen in the next few months. What are your priorities? What are your short-term and longer-term goals? For example, do you expect money to be tight in the coming months? How are your RRSPs and TFSAs doing? Do you have any major renovation plans in the near future? The answers to these questions will help you choose the best strategy for you.

What should you do with your extra money? Cash it?

Treat yourself

If you’re dreaming of spending your extra cash on a vacation, a pool, or a gourmet road trip, you certainly can. But take the time to look at your finances and make sure this money couldn’t be put to better use for something else. And more importantly, think about how it affects your taxes. If this extra money is from a bonus, it will be added to your income. So, consider setting some aside if your employer has not already deducted your provincial and federal taxes from it.

Add to your emergency fund

If you don’t have an emergency fund, creating one is worth considering. It’s a great way to have peace of mind when unforeseen events pop up, such as the loss of your job or extended sick leave. Your emergency fund should be large enough to cover three to six months of expenses.

If you put it in a savings vehicle, your emergency fund could earn interest and increase in value over time. You could also set up automatic withdrawals in your account to make sure you make regular additions to it.

Pay off your debts

If you have debts, such as lines of credit and credit cards, a personal loan, car loans, or student loans, you could use this extra money to partially or completely pay them off. Here are some tips on how to do it:

  • Make a list of all your debts with the amount and interest rate.
  • Prioritize debts with the highest interest rates first, since they usually cost you the most.

The goal is to achieve or maintain an acceptable debt-to-income ratio, which will make it easier to obtain financing from financial institutions. Then try to keep up your good financial habits.

Pay off your mortgage faster

If you already have an emergency fund and your debt is under control, you might consider using this additional cash flow to pay off your mortgage faster. That way you’ll be able to reduce the amortization period of your mortgage—and the amount of overall financing fees that come with it. Ask your advisor about any conditions that may apply. And if your interest rate is low and your home is appreciating, ask if this is the best option for you.  

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What should you do with your extra money? Invest it?

In an RRSP

If you want to invest your extra money, the registered retirement savings plan (RRSP) (RRSP) may be a great option. Did you get a bonus? Even if this amount is added to your gross income on your tax return, investing it in an RRSP could help you reduce your taxes for the current year. A maximum contribution limit is set each year, so be sure to check it and factor it into your financial plans.

If you want to have access to your extra money for the short to medium term, you may be better off with another option, since RRSP withdrawals are usually taxable. 

However, if you’re thinking of using your RRSP to take advantage of the Home Buyers’ Plan (HBP) to buy your first home or the Lifelong Learning Plan (LLP) to go back to school, this may be a good option, since withdrawals are not taxable. Keep in mind that you will still have to pay these amounts back into your RRSP one day, in accordance with the rules governing these programs.


If you’ve already used up your RRSP contribution limit or if you’re looking for more flexibility, investing your extra money in a TFSA could be the solution for you. This savings account presents a number of advantages:

  • Any amount contributed as well as any income earned in a TFSA is not taxable, as long as you don’t go over your contribution limit.
  • Unused annual contribution room rolls over from year to year.
  • Unlike RRSPs, TFSA withdrawals are tax free.

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In an FHSA

Are you considering buying your first home? Or have you not owned your main residence for the past four years and would like to buy a home? With your extra money, you could save for your down payment in the new tax-free First Home Savings Account, also known as the FHSA. Here are the benefits of this registered plan:

  • You can contribute up to $8,000 per year, for a lifetime total of $40,000.
  • Like an RRSP, your FHSA contributions reduce your taxable income.
  • All returns earned in the FHSA are tax-free.
  • Unlike the HBP, the money withdrawn for your down payment doesn’t need to be repaid.

In an RESP

If you have children, you could use your surplus cash to take out a Registered Education Savings Plan (RESP).

  • Your savings are tax-sheltered.
  • An extra 20% to 40% (depending on your province of residence) will be added to the amount you invest every year thanks to government subsidies, such as the Canada Education Savings Grant (CESG).
  • It’s a great way to give your children the chance to pursue the education of their choice so they can achieve their full potential.

Good to know: If you’ve maxed out all your contributions to your registered plans, such as RRSPs, TFSAs, and RESPs, you could invest in non-registered accounts.

In short, surplus cash or not, the key is making saving part of your routine, whether you put away a little at a time or in big chunks. Month by month and year by year, you’ll watch your savings grow and be in a better position to make all your plans a reality, and ultimately enjoy a pleasant retirement.

Are you wondering how to start investing?


I’ll explain faster than it takes to make sushi.


Can I make bread?


We’ve been doing that for almost 3 years now.


Before you start investing, you need to make a budget to determine how much money you can set aside.

And to find out how to save money, click right here.


Next you need to determine your investor profile.

Your goals and your risk tolerance will help you set it.

Would you like a stable income?

To have your money available to you any time?

If you answered yes, you have a secure profile.

Secure like the people who buy ready-made sushi.




If you want to generate long-term growth and short-term fluctuations don’t stress you out, you can choose a profile geared toward equity.


Next, all you have to do is invest in products that correspond with your profile.

Stocks are shares in companies that are publicly traded.

They are riskier investments because if the company doesn’t perform well, the value of the shares may fall.

Mutual funds and exchange-traded funds, known as ETFs, are like maki rolls.

They contain different products and you can choose to buy a piece...or two.

No matter whether you’re cautious or like taking risks, there’s something to suit everyone’s taste!


Even for the people who like dessert sushi?


Even for the people who like dessert sushi!


If you’re really cautious, guaranteed investment certificates, or GICs, could be a good option.

A GICs is money that you lend to a financial institution.

The institution guarantees to give the money back after a set period of time.

You choose the term, from 30 days to 10 years.


The same time it takes to become a sushi expert, surely.


Surely, once you decide whether you’re more of a nigiri, a maki, a fish or a tofu investor, the next step is to decide how to invest:

on your own or with the help of an advisor.


Then, you just have to wait for it to grow with compound interest.


What’re you doing?


Ordering sushi.


Good idea!

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