Crossing the $30,000 mark in your savings account is a big milestone. Here are some key steps to consider to make the most of your growing financial reserves.
1. Review Your Emergency Fund
When you’re looking at your emergency fund, the old rule of saving for 3 to 6 months isn’t a one-size-fits-all. It really depends on your job. Say you’re a bigwig in your company or in a super-specialized field. Finding a new job at your level can be tough. There aren’t as many openings, and it can take way more than six months to land the right spot.
Sure, you could grab any job to get by, but if you’re used to a certain lifestyle, flipping burgers isn’t going to cut it. You might want to think about bulking up that emergency fund. Maybe save enough to cover your bills for a year, just to be safe. It’s all about making sure you’re covered, without having to turn your life upside down if the unexpected happens.
2. Pay Off High-Interest Debt
Paying off high-interest debt is a savvy financial move, and here’s why it often beats methods like the debt snowball, which prioritizes paying off the smallest debts first.
Let’s use an example to illustrate the advantage. Imagine you have three debts:
- 1. Credit Card A: $5,000 at 20% interest
- 2. Credit Card B: $2,000 at 15% interest
- 3. Personal Loan: $1,000 at 5% interest
The snowball method, popularized by Dave Ramsey, suggests you start with the smallest loan – the personal loan in this case. It feels good to quickly get a debt off your list, but it’s not the most cost-effective.
Now, consider the avalanche method, which focuses on high-interest debts first. If you tackle Credit Card A (20% interest), you’re saving more on interest over time. Yes, it might take longer to pay off that first big chunk, but you’re actually reducing the amount of interest you pay in total.
Here’s a quick breakdown: Paying off $5,000 at 20% interest saves you $1,000 in interest a year. On the other hand, paying off the $1,000 loan at 5% interest only saves you $50 a year.
So, by focusing on high-interest debts, you’re not just crossing debts off your list; you’re also cutting down on the extra money (interest) you’re paying the lender. It’s a smarter way to free up your future income from high interest rates, even if it doesn’t give you the quick win of paying off a smaller debt first.
2. Buy a Rental Property
Use your $30,000 as a down payment for a rental property. In many places, $30k is a solid start. You could even find properties under $100k in some coastal towns.
It’s a chance to earn from rent, although it comes with the responsibility of handling things like repairs and insurance. But if you’re ready for it, this can be a great way to grow your investment.
3. Invest in Index fund
Index funds are a type of mutual fund that mirror the performance of a specific market index, like the S&P 500. They are known for being a more passive and long-term investment strategy.
The beauty of index funds is their simplicity and lower risk compared to picking individual stocks. Since they track a broad market index, you’re essentially investing in a wide section of the market, which helps spread out your risk.
Putting your money into an index fund could be a great way to see it grow over the years, especially if you’re looking for a “set it and forget it” approach to investing.
4. Start a Business
Think about what you’re passionate about or a unique idea you have. Maybe it’s opening a small coffee shop, starting an online store, or offering a service in your community. Starting a business takes work – you’ll need a plan, some marketing, and maybe a few extra hands.
5. Invest In Retirement
Boost your retirement savings with your $30,000. If you’ve got a 401(k) or a similar plan through your job, think about putting more money into it, especially if your employer matches contributions – that’s like free money. Another good option is opening or adding to an IRA.
6. Buy a Farmland
There are still many areas where farmland is relatively affordable. This kind of investment can offer you a slice of the agricultural market, which can be quite resilient. Whether you lease the land to farmers or get involved in farming yourself, it’s an opportunity to tap into a fundamental industry.
The value of land often appreciates over time, making it a solid long-term investment.
7. Review Your Insurance Needs
Reassess your insurance coverage, be it life, health, or property insurance – as your financial situation evolves. With more savings, you may have different needs and responsibilities to consider.
It might be time to increase your life insurance to better support your loved ones or enhance your health insurance for more comprehensive coverage. For property insurance, consider if your current policy covers the full value of your assets.
David Bakke is a personal finance expert and the published author of the book ‘Don’t Be A Mule.’ Specializing in money management, investing, retirement, income generation, and entrepreneurship, he earned his Bachelor of Arts in Creative Writing from the University of South Florida. David started his own blog, YourFinances101, in 2009. His writing has been featured in Investopedia, Business Insider, US News, and Money Crashers.