There are worse problems than having to figure out what to do with $30,000.
You might think: I have a lot of money to play with! But it’s also a lot of money you can waste, so be careful. A big windfall provides an opportunity to get your finances in order and prepare for the future.
These are the best financial decisions you can make with that kind of cash.
1. pay off the debt
One of the best decisions you can make with your money is paying off high-interest debt, such as credit card debt. Paying off that debt is one of the best investments you can make, as credit cards can carry interest rates of 20% or more. According to Experian, the average credit card balance will grow 13.2% to $5,910 in 2022.
A cash windfall from an inheritance or performance bonus can be the perfect opportunity to pay off a large or high-interest debt in full. You should actively pay off your balance to avoid paying interest over the years.
2. Increase your savings
According to a recent Bankrate survey, only 43% of Americans have enough savings to cover an unexpected $1,000 expense. 1 in 4 of her Americans use credit cards to cover expenses, a study found.
Financial planners often store three to six months worth of expenses in a high-yield savings account as an emergency fund to have a little cushion in case they suddenly lose their job or encounter significant unexpected expenses. It is recommended that you carry a
3. Allocate to retirement allowance
More than half of Americans say they’re behind in retirement savings, according to a recent Bankrate survey. Many factors contribute to the shortfall, but inflation was the number one reason Americans sought to cut back on their retirement contributions.
The cost of living is high, income growth is slow, and many struggle to make ends meet. But your girlfriend’s $30,000 should provide cover for more contributions if you have an employer-sponsored 401(k) plan. The goal is to contribute 10-15% of your income, including matching from your employer. You can also contribute to a traditional IRA or Roth IRA with more investment options and similar tax benefits.
4. Save money for college
Americans also find it difficult to save for college. Rising tuition fees and financial pressure on families have pushed student loan debt to near record levels.
If you have children, invest in your children’s future by opening a 529 college savings plan or Roth IRA.
Every approach has pluses and minuses. The key is to start depositing money early.
5. Open an investment account hassle-free
Think of $30,000 as your ticket to making even more money?
Instead of looking for the next Apple or Amazon, focus on building a diversified investment portfolio of low-cost mutual funds and exchange-traded funds that deliver solid returns over the long term.
You don’t have to buy a lot of money to get where you need to go. Large investment managers such as Fidelity and Vanguard offer a number of one-stop funds for diversification.
Alternatively, you can use a target-date fund that aligns your portfolio’s asset allocation with a future date when the funds will be needed. In other words, the farther you are from your end goal, the more stocks you own, and the closer you are to your target date, the more bonds you hold. For even more security, find the best CD rates and add some certificates of deposit to the mix.
6. Leave it to the robo-advisor
If you’re not interested in managing your portfolio yourself, consider opening an account with a robo-advisor. Robo-advisors use algorithms to build a portfolio based on the client’s financial goals and risk tolerance. Answer a few basic questions and the robo-advisor will do the rest.
Although they don’t offer the same hands-on attention as traditional financial advisors, robo-advisors charge significantly less than human advisors.
Betterment and Wealthfront are two of the most popular robo-advisors and offer features like tax loss harvesting and portfolio rebalancing.
Editorial Disclaimer: All investors are advised to conduct their own research on investment strategies before making any investment decision. Further, investors should be aware that past investment product performance is no guarantee of future price appreciation.