20 Smart Ways to Spend Money You Receive as a Gift

While the old saying that 'tis better to give than to receive may be true, chances are that you'll be on both the giving and receiving end of gifts this holiday season. If some of the gifts you receive wind up being cash, congratulations, you've got an incredibly flexible gift that you can put to use any way you'd like.

Of course, there are some ways of using that cash are smarter than others. These 20 ways are among the more intelligent ones for you to consider when it comes to your own holiday cash.

Nothing ruins the joy of the holiday season quite like the hangover of the debt that remains when all the gift giving is done. By using the cash you receive as a gift to pay off what's left of your own holiday shopping, you can get rid of the downside of the holidays while still enjoying the fun of giving.

ALSO READ: Americans Plan to Decrease Holiday Spending -- but They're Still Spending a Lot

If you are carrying virtually any sort of debt, you're making principal and interest payments on something you've already purchased. Even worse, you may be making those payments on something which you may very well no longer be using. That's money flying out of your pocket with no real current benefit to you! Putting your gift money towards debt payback will enable you to speed up the time it takes to get out of making those future payments for your past purchases.

One of the best parts of receiving cash is the fact that it's a gift that is appreciated by everyone. If you find yourself the recipient of cash that you don't immediately need and know you've got your own gift-giving opportunity coming up, feel free to pass along the cash to another recipient. Chances are they'll appreciate the generosity and won't know (or care) that the money has been re-gifted to them.

If you don't have an immediate need for the money, why not donate it to a charitable organization you know and trust that can put it to good use? Not only will you get the satisfaction of knowing your gift is going to help those in need, but you might get a tax deduction as well.

Around 60% of Americans can't pull together $1,000 to cover even a modest emergency. That puts them one car wreck, one unexpected illness, or one brief stint of unemployment away from a financial calamity. If you find yourself in that situation, then putting the cash you receive aside just in case some sort of emergency happens just might be the best gift you could possibly give yourself.

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If you're behind on your taxes, the IRS can be a relentless collector, even going so far as to garnish your Social Security check in retirement until you get caught up. If you find yourself behind on your taxes, using gift money to pay back Uncle Sam can save you a whole lot of hassle, stress, penalties, and interest.

In order to avoid the interest and penalties that often turn minor tax troubles into major ones, you need to be within a "safe harbor" through withholdings or timely estimated tax payments before you file. For most people, you need meet any one of these three criteria by the time you file your 2019 taxes in 2020:

• Be paid to within $1,000 of your total taxes owed for 2019
• Paid at least 90% of the taxes you owe for 2019
• Paid at least 100% of the taxes you owed for 2018 (110% if you're considered higher income)

Note that if you qualify as a professional fisherman or farmer, the rules are a bit more relaxed.

If your gift money frees up enough cash to let you increase your withholding on your last paycheck for the year or add to your fourth quarter estimated tax payment, it may save you penalties later.

Closing small air gaps in your home via caulking and weather stripping can be one of the most cost-effective home maintenance and improvement projects you can do. Indeed, such fix-it-up tasks can often pay for themselves from the energy savings you get from having a more weathertight home. Best of all, using your gift money in that way can help you physically as well as financially, as you will likely feel more comfortable in a weathertight home than in a cold and drafty one.

LED lighting uses about a fifth of the energy of incandescent lights, and LED bulbs tend to last much longer than incandescent ones as well. Taken together, those two factors make LED bulbs a clear choice for most commercial and public lighting needs. Homeowners, on the other hand, face a somewhat tougher tradeoff in that LED bulbs do tend to cost far more than traditional incandescent bulbs. That makes it harder to justify the cash outlay to switch.

By taking your gift money and using it to buy LED lighting, you can jumpstart the savings process for yourself. As you start to see the benefits of lower electric bills and fewer light changes, you can use the savings you see to fund the remainder of the move, ultimately saving yourself even more.

ALSO READ: 5 Easy Ways to Save Money in 2020

As fun and relaxing as vacations can be, all the stress you relieved can come back magnified once you get back to reality and face the bills associated with your travel and time away from work. To help make sure your next vacation really allows you to recharge, save up for the total cost in advance, so that you don't have the bill hangover afterwards. Your gift money can be a great starting point towards that even more relaxing break.

Even if you pay your credit cards in full every month, you're still buying stuff first, then paying the bill later. It's easy to get trapped in a situation where you have to use your cards because so much of your paycheck goes towards paying off last month's spending, leaving you with nothing but the cards for this month. Using your gift money to get a leg up on that existing credit card balance can free you from that treadmill and get you more of a buffer to keep yourself from falling into some pretty costly debt.

If you or someone you love is potentially headed for college, you can sock your gift money away in a 529 plan to help cover some of the cost of that education. The money you sock away in that type of account can grow completely tax free if used for qualifying educational expenses. In addition, if you contribute to your state's sponsored plan, you may even get a state income tax deduction on the money you sock away. That makes it both a win for the student you're saving for and a potential win for you as well.

Whether you buy new or used, one of the most powerful ways to buy a car is to pay cash for it. In many cases, the easiest way to do that is to keep making your payments -- to yourself, rather than to the financing company -- once you’ve paid off the loan on your current car. If you take your gift cash and either put it towards your car loan or sock it away in the account you're saving in to buy your next car, you can get to the point where you can buy your next car that much faster.

If you're looking to own your home you'll need a decent down payment to get the best overall borrowing package. Most lenders require a 20% downpayment to get the best overall terms and avoid PMI. While it's unlikely that a single gift will be enough to get you from $0 in savings to a full 20% downpayment, every bit helps and gets you closer to that target.

ALSO READ: When's the Best Time to Buy a House?

If you're under age 50 and working, you can invest up to $6,000 in your IRA, and if you're age 50 or up, that limit increases to $7,000. If you haven't maxed out your IRA for 2019 yet, you have until April 15, 2020 to do so. Money you sock away in that account can grow tax deferred until you take it out in retirement, and if you are investing it in a Roth style IRA, your retirement withdrawals may even be tax free. Your gift money can be a great source of funding to get you closer to maxing out that account.

At minimum, you should be contributing enough to your 401(k) to take advantage of any match your employer offers, as that match provides some of the easiest returns you can make investing. While you can't directly put your gift money to use in your 401(k), you can spend your gift money instead of part of your paycheck -- and redirect that part of your paycheck towards increasing your 401(k) contribution.

Even better, once you boost your 401(k) contribution, if you realize you can live on the slightly smaller paycheck that move involves, you can keep your paycheck contribution at that higher level. Over time, that can dramatically improve what you eventually end up with in retirement.

Unless you still have time to affect your last paycheck of 2019, you may not be able to put this strategy to work until your first paycheck of 2020. In 2020, the maximum contribution to a 401(k) increases to $19,500 for those under age 50 or $26,000 for those age 50 and up, but there may be stricter limits if you're a highly-compensated employee.

Dividend reinvestment plans allow you to buy stock in a company from that company and reinvest your dividends. They frequently offer low minimum investment amounts, sometimes even as low as $25 per investment. That makes them a great way to sock away even small amounts of money for your long term future, as long as you have an individual company whose stock you want to buy and it has such a plan available.

In today's era of $0 commissions, many brokers allow you to buy from a large selection of exchange traded funds at no charge above and beyond the market price of the funds themselves. The primary advantage of investing in an exchange traded fund vs. individual stocks is that you can get instant diversification with a single purchase. That can be a great way to turn even a fairly small cash gift into a fractional ownership stake in a lot of great companies all at once.

ALSO READ: ETF Basics: How to Choose the Right Exchange-Traded Fund for You

If you think you'll need to spend your money in the not-too-distant future, you’ll want that money in something a little less volatile than stocks. Despite the fact that you'll likely get lower returns in bonds than in stocks over the long haul, bonds make much more sense for money that you've got a clear line-of-sight visibility to your need to spend. Similarly to stock-based exchange traded funds, bond-based ones can often be purchased commission free these days and offer instant diversification.

As long as your overall financial house is in order and you're on track for your key financial goals, there's nothing wrong with accepting and using a cash gift in the spirit in which it was given. After all, you can't take it with you. If spending your gift on yourself won't lead to more pain and financial heartache later, then feel free to get yourself something you'll enjoy with that money. Just be sure to consider the other 19 ways first, so you don't find yourself with a ton of regret once you've spent it and it's gone for good.

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