As you begin building your net worth and reaching new financial goals, you may set your eyes on reaching $10,000.
It’s a pretty big milestone to hit, especially if you are starting fresh in your financial journey.
The first time I had $10k saved, I had to refresh my bank screen a few times because it didn’t seem real. After all, prior to that goal I typically never had more than $1,000 saved at a time!
And although this is a nice sum of money after you reach this milestone and the excitement wears off a bit, you may stop to wonder a few questions:
Is $10,000 a lot of money? How far will this amount take me? What should I do with this amount of cash?
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Is $10,000 A Lot of Money?
Having $10k saved is a commendable milestone but overall it is not typically considered to be a lot of money. For a majority of Americans today, this amount may only cover 3-6 months of living expenses pending their lifestyle and where they live. It seems to fall into the category of “having a lot of money” that you’ll want to have $100k+.
Overall, it’s hard to say an exact number of what constitutes a lot of money as everyone has different personal money mindsets, living expenses, and how you budget your income.
Is $10,000 in Savings Good?
Now don’t get discouraged by the previous section where we’ve basically established that $10,000 is not exactly a lot of money. It’s certainly an awesome achievement, especially when you consider that the Federal Reserve reported that 39% of Americans don’t have enough money on hand to cover a $400 emergency.
So remember, when you hit this $10k savings goal take the time to celebrate and feel good about your efforts. It can be a long journey of work on your personal finances!
So, is $10,000 in Savings Good?
Comparable to the statistical averages and majority of Americans, having $10,000 in savings is good and a great accomplishment. The earlier you reach this goal, the better it will be for your future financial goals and family, should you decide to start one. Ensure to save and start investing a portion to ramp up additional money.
What Should I Do with $10,000?
Now that you understand the value of $10,000 a bit more, let’s get into some strategy to help put that money to work for you! There are quite a few options on how to best use this money and it will depend on your personal situation.
However, you’ll find that these options will be some of the best ways to utilize that $10,000 you have just saved.
1. Keep It For Your Emergency Fund
If this is the first time you really focused on saving money, then there is a good chance that this $10,000 is the perfect amount for your emergency fund!
It’s not exactly an exciting way to use the money, but it’s so critical to have money ready to go during an unexpected life event.
Maybe you lose your main source of income, a medical emergency comes up, or a major household expense happens. When you have money set aside, it creates a buffer for you and a bit of relief as you don’t stress how you’ll pay for something.
If you don’t have an emergency fund already, then move this $10,000 into a savings account. Look for an account that offers interest and no random “maintenance fees” so you keep more of your money and even make some while it sits until needed.
Remember, you want to aim for 3-6 months of expenses saved for your emergency fund. That might be more than $10,000 but you have saved a solid amount of money regardless.
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2. Pay of Some Debt
One area that will hold many people back from winning in finances is the debt that is accrued over time via credit cards, car payments, or student loans. It can hinder your savings goals and slow down any pursuit of financial freedom you might be considering.
If you already have some emergency fund set up but hit $10,000 as a separate goal, then you might want to consider paying off some debt.
I know, you just saved this amount and seeing it disappear to a credit card company or student loan isn’t thrilling.
But it can actually elevate your savings rate and reduce unnecessary stress you might be feeling about your debt or the interest you owe on any debt. You might not want to use all $10k toward debt, but figure out what might make sense for you.
3. Start Investing The Money
I’m a big fan of investing, especially when you consider how compound interest can go to work for you. You can easily see that the $10,000 you have saved turn into $50,000 or $100,000 over the years just by investing.
So if you are in a good spot where you have an emergency fund and little to no debt left, then investing most or all of your $10,000 could be a smart move.
You can start with a retirement account you might have with your employer or open a Roth IRA with a financial company. I always recommend Vanguard Index Funds, but there are a few other great options out there as well. Another option is to open a taxable brokerage account and look for tax-efficient funds.
Additionally, you could split out your investments among different avenues for more diversification. Real estate with DiversyFund or Fundrise, maybe fine art with Masterworks, or even farmland with FarmTogether.
There are a plethora of investment options to consider, just understand the risks involved before investing all $10,000.
4. Fund An HSA Account
Unfortunately, not all health plans in America that are offered are very good. It’s unfortunate that this has not been solved, but this is where a Health Savings Account (HSA) could also be a good option to put some (or all) of your $10k towards.
If you have a high-deductible health plan or have a few medical expenses, then opening an HSA account can be a smart money move.
- Your money contributions are tax-deductible
- Your money grows in this account tax-free
- There is no tax on withdrawals if you spend the funds on qualified medical expenses
Your employer may offer an HSA, but if not you might want to consider opening an account with Lively. The platform offers a solid savings and investing account with no monthly maintenance fees.
5. Fund A 529 Account
Do you have a growing family and want to ensure you have funds for future educational expenses? Then utilizing a 529 account could be a great option for your $10,000 that you saved.
What is cool about a 529 account as you can find some tax advantages by having one. For example, as long as the money stays in the account, you won’t owe income taxes on earnings. And when you take the money out for education expenses, those withdrawals may be federal income tax-free and also state tax-free.
The money can be invested like you would in a retirement account and the funds can then be used for tuition, books, and other qualified education expenses. There are a few additional rules and regulations when it comes to these account types, so make sure to do your research before starting one.
6. Start A CD Ladder
With your bank or online bank, you may notice an option to open a CD or “Certificate of Deposit.” This can be a way to make some interest on your $10,000 that you saved.
According to Investopedia, “A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.”
However, you can do something called a CD Ladder. If you don’t anticipate needing to use a certain amount of money for at least 5 years, then a CD ladder could be an interesting option.
NerdWallet defines a CD Ladder as, “…a savings strategy to spread cash equally across multiple certificates of deposit to take advantage of higher rates — usually in long-term CDs — while freeing up portions of that money at short-term intervals.”
7. Start A Business
Do you have the entrepreneurial bug? Always wanted to start your own business? Than $10,000 can actually be great start-up money for you.
There certainly is risk in starting your own business and there is a chance that you lose out on the $10,000 you just saved, but it could lead to something much bigger financially for you.
The good news is many online businesses, for example, won’t require $10,000 to get started at all. When I started this website, I spent about $2,000 in the first year. And that was even sort of high, as many online websites take even less to get going.
Each business endeavor is different and what it might cost, but if you are financially in a good place and what to work for yourself, then use your $10k towards a business.
Although we have established that $10,000 is not really considered a lot of money, it is still a great financial milestone to be proud of in your life. That amount can give you more peace of mind and impact your finances well into the future.
Plus, it also shows that you can set disciplines for yourself and that you can achieve even great sums of money saved down the road. Cheers to your next financial savings goals!