When you’ve diligently accumulated savings, you’re familiar with the challenges of preserving them. If you’ve successfully saved $10,000, it’s a testament to your financial discipline, demonstrating your capacity to increase your wealth further.
However, merely allowing your savings to sit still in your checking account isn’t the wisest strategy. Instead, consider leveraging your financial prudence to accelerate the growth of your net worth. By putting your money to work, you can ensure that it doesn’t remain stagnant.
Now here are 7 smart money moves if you have $10,000 in savings.
1. Put some in your checking account
While it’s certainly prudent to allocate a portion of your funds to a savings account, it’s equally essential to maintain a financial cushion within your checking account.
Ensuring you have a surplus of at least $500 readily available in your checking account serves as a valuable safeguard against unforeseen expenses. This buffer acts as a protection, safeguarding you from the inconvenience and financial burden associated with overdrawing your account, which often incurs costly overdraft fees.
However, it’s imperative to strike a balance. While having this buffer is crucial for financial security, maintaining an excessively large balance in your checking account may inadvertently lead to unnecessary spending temptations.
2. Open a high-yield savings account
When you’ve successfully accumulated $10,000, you might be wondering where to store it securely and profitably. One of the most advantageous options is to consider a high-yield savings account.
These financial instruments share similarities with regular savings accounts but come with a distinct advantage: they offer an impressive annual percentage yield (APY) of around 4.00% to 5.00% on your deposits.
These high-yield savings accounts are especially beneficial if you’re saving for a short-term financial goal or wish to store your emergency funds. What sets them apart is their ability to provide relatively high returns while keeping your funds completely risk-free. This means your hard-earned money can grow significantly over time without exposure to the volatility of riskier investments.
By choosing a high-yield savings account, you not only preserve the security of your savings but also grow it with the power of compounding interest. This means that your money will earn interest, and that interest will, in turn, earn interest, accelerating the growth of your wealth over time. It’s a smart and reliable strategy for anyone looking to make their money work for them while maintaining financial flexibility.
3. Pay off high-interest debt
Although having substantial savings can offer a sense of financial security, it’s crucial to recognize that if you’re burdened with high-interest debts, you may still be losing money due to the monthly interest obligations.
For instance, if you are grappling with credit card debt or other consumer loans with interest rates of 10% or higher, it’s often more financially savvy to prioritize paying down these debts.
The reason is straightforward: the interest you save by reducing these obligations can often outweigh the returns you might generate from investments or keeping your money stashed in a standard savings account.
By tackling high-interest debts head-on, you effectively put your money to work by preventing it from being eroded by interest payments. This approach not only improves your overall financial health but also provides a guaranteed return on investment in the form of interest savings.
It’s a prudent strategy that sets you on a path toward financial freedom and allows you to redirect your resources toward wealth-building activities once your high-interest debts are under control.
4. Increase your 401(k) contributions
When you find yourself with a substantial sum of money in your bank account, it’s wise to start expanding your investment portfolio. Compound interest is a potential financial tool, but it thrives on time and regular contributions. Increasing your annual investment amount can serve as a potential recipe for achieving greater financial success over the long term.
For those fortunate enough to have a 401(k) through their employer, taking advantage of this financial vehicle can be particularly beneficial. You can initiate this by reaching out to your HR department to explore the option of increasing your contributions.
If your company offers a matching program, you’re in an even more advantageous position. By contributing more to your 401(k), you not only harness the power of compound interest but also potentially leverage your employer’s contributions to accelerate the growth of your retirement savings.
5. Open an IRA
If you’ve diligently saved $10,000 but haven’t started investing yet, now could be the best opportunity to consider initiating an Individual Retirement Account (IRA). This financial tool offers valuable tax advantages and serves as a pivotal step in securing your retirement.
An IRA enables you to invest up to $6,500 annually, channeling your funds into various investment options that align with your financial objectives. Two primary types of IRAs exist, each with its own tax benefits: traditional IRA and ROTH IRA.
Opting for a traditional IRA allows you to enjoy immediate tax benefits. The money you contribute is typically tax-deductible in the year you make the deposit, potentially reducing your current tax liability. However, you’ll pay taxes when you withdraw the funds during retirement.
With a Roth IRA, you contribute after-tax income. The significant advantage here is that your withdrawals during retirement are usually tax-free. This means you can potentially enjoy tax-free growth on your investments over time.
6. Start an emergency fund
It’s essential to have a financial safety net for unexpected circumstances. Unforeseen expenses such as car repairs, medical emergencies, or the need for urgent roof repairs can easily run into thousands of dollars.
If you’ve successfully saved $10,000 in savings, it’s wise to allocate a portion of this sum specifically for emergencies. A practical approach is to transfer these funds into a dedicated “Emergency Fund” account. This action serves a dual purpose: it prevents you from unintentionally using the money for non-urgent purposes and helps you maintain financial discipline, even when confronted with an unexpected financial crisis.
By establishing an Emergency Fund, you create a crucial buffer that ensures your budget remains intact, irrespective of unforeseen circumstances. It provides peace of mind, knowing that you have a financial cushion to fall back on when life throws you something unexpected.
7. Start investing in ETFs
If you’re thinking about putting your diligently accumulated savings to work through investments, it’s worth exploring the Exchange-Traded Funds (ETFs). These financial instruments provide an efficient and diversified avenue for investors.
ETFs essentially function as a single investment vehicle containing a multitude of underlying assets. Many of the most favored ETFs encompass a broad spectrum of stocks, essentially affording you the opportunity to invest in the market as a whole by holding a fractional stake in numerous publicly traded companies.
Furthermore, ETFs extend beyond equities; they encompass bonds, commodities, and sector-specific stocks. This versatility enables you to diversify your investment portfolio with remarkable ease. By allocating your funds to a few select ETFs, you can achieve a well-rounded and balanced investment strategy, spreading risk across different asset classes and sectors.
