I Can Only Afford to Save $100 a Month. What's the Smartest Thing I Can Do With It?

Many of us are working hard to meet goals that will help us improve our finances. For many people, saving for the future is an important personal finance goal.

If you have limited extra funds left in your checking account at the end of the month, saving or putting extra money toward your goals may feel impossible. But even a small amount of money can make a difference and add up over time.

Do you have an extra $100 each month to put to good use? It's never too late to improve your finances. Let's look at three ways you can improve your finances with $100 a month.

1. Earn interest while you build an emergency fund

If you have an extra $100 per month and are looking for what to do with it, one option is to stash it in a bank account that earns interest. Some of the best high-yield savings accounts offer annual percentage yields (APYs) of 4.5% or more.

A bank account's APY is the amount you can expect to earn by keeping your cash in the bank for a year. The longer you keep your savings in the bank, the more you'll earn.

If you save $100 monthly for an entire year, you'll have $1,200 in the bank. But if you keep your savings in a savings account, you'll also earn interest. After one year of keeping $1,200 in a high-yield savings account with a 4.5% APY, you'll earn $54 in interest.

The nice thing about this type of bank account is that you can quickly access your money without penalties, so you'll be prepared for an emergency. This option could be a great place to start for those without an emergency fund.

2. Prioritize paying down high-interest debt

If you have debt, especially high-interest debt, don't ignore it. High-interest debt, like credit card debt, can quickly grow out of control and become a much bigger issue. If you can afford to put an extra $100 monthly toward your debt, it could help you get out of debt faster.

First, you'll need to decide whether the debt snowball versus debt avalanche debt payoff strategy is best for you. But if you have a loan or credit card with a high interest rate, you may want to follow the debt avalanche method to get rid of your debt with the most costly interest rate first.

Then, set and follow a debt payoff plan. If you need help, check out the best debt payoff apps. As long as you have some emergency savings, it's likely best to prioritize using your extra cash to get out of debt rather than throwing it all towards your saving or investing goals.

3. Invest your money for long-term growth

Investing your extra money during your working years is another way to put $100 per month toward bettering your finances. Investing involves risk, and there are ups and downs. But investing can be an excellent way to set yourself up financially for your non-working years.

The key is to remember that investing is a long-term strategy. You'll earn compound interest. The longer your money is invested, the more your money will grow. When you invest, there's no guaranteed rate of return. But over the last thirty years, the stock market has had an average annual return of around 10%, as measured by the S&P 500.

Curious how much your money can grow? Let's imagine you decide to invest $100 per month for the next 30 years. Here's a breakdown of the potential account growth after 10, 20, and 30 years with an 8.5% rate of return using the compound interest calculator from Investor.gov.

If you're focused on long-term growth, investing $100 each month could be a good move for you. Many people invest through an IRA account. Check out our list of the best IRA accounts to learn more about how these investment accounts function.

Don't put off taking action because you have minimal extra cash

Life is expensive. The cost of housing, groceries, and everyday essentials is much more than it was a couple of years ago. Many people are struggling to save money due to having limited extra funds. But don't let your current financial situation get you down.

Setting aside a small amount of money each month can get you much closer to your goals. Being able to set aside $100 each month is a fantastic accomplishment. Whether you can save $25, $50, or $100 monthly, don't delay thinking about your financial future.