If you have extra cash in your bank account and you’re looking at what to do with it, it can be tempting to start looking for the best TSX stocks to buy right away.
However, even a high-quality investment might not always be the best place for your next dollar.
In fact, one of the most important personal finance lessons Canadians can learn is that where your money should go depends on several different factors.
For example, how much debt you have, what your debt is costing you and when you might need the money all matter when deciding what to do with excess cash.
The good news is that paying down debt, saving and investing can all help you build wealth. You don’t necessarily have to choose just one and forget about the others.
So, here’s a simple way to figure out where your extra money should go first and when it makes sense to start investing for the long haul.
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Start with expensive debt and money you’ll need soon
If you’re carrying a credit-card balance at a high interest rate, paying it down will almost certainly be the first place to start.
In fact, Warren Buffett actually made that point at Berkshire Hathaway’s 2020 annual meeting. He said that if he owed money at 18% interest, the first thing he’d do with available cash would be to pay it off.
That’s easy to understand. Paying down that balance saves interest without needing the stock market to cooperate.
However, you also want some cash available so the next car repair or unexpected bill doesn’t go straight back on the credit card. Keeping a small cushion alongside your debt repayments can help you keep making progress.
Beyond that, money you’ll need for upcoming expenses belongs in savings too. For example, if you’re planning a major purchase next year, you don’t want to depend on what the stock market happens to be doing when that bill comes due, which is why having some cash in a savings account or a GIC that matures before you need the money can make much more sense.
It’s also worth remembering that you don’t necessarily need to pay off every debt before investing.
A manageable mortgage is a different decision from an expensive credit-card balance. And if your employer matches retirement contributions, that’s worth factoring in, since it adds money to your savings immediately.
Put your long-term money into businesses that can grow
Once expensive debt is under control, and you’ve set aside enough for emergencies and upcoming expenses, you can start putting your long-term money into investments that can help you build significant wealth over time.
Furthermore, having those savings also makes it easier to leave your investments alone when markets sell off, giving the businesses you own more time to grow and your returns more time to compound.
And while there are plenty of high-quality Canadian stocks to buy and hold for years, one of the very best has to be Restaurant Brands International (TSX: QSR).
Most Canadians know QSR as the parent company of Tim Hortons. However, it also owns Burger King, Popeyes and Firehouse Subs, with more than 33,000 restaurants across over 120 countries and territories.
Plus, QSR doesn’t just own these global food brands; its business is also largely franchised, so it earns royalties based on restaurant sales, meaning it can grow through both higher sales at existing locations and new restaurants opening.
That gives it several ways to expand without needing to own and operate every restaurant itself.
Furthermore, its growth potential goes well beyond Canada. In its most recent quarter, its international restaurant count grew by roughly 5% year over year, showing it continues to open more locations where it earns those fees.
Plus, Restaurant Brands pays a pretty reasonable dividend given all that growth potential, with a current yield of roughly 3.7%.
So, if you’ve got your debt under control and have cash set aside for emergencies and upcoming expenses, finding stocks like QSR to buy and hold for years is the next step towards putting that extra money to work and building long-term wealth.
