I’m a Financial Advisor: 6 Steps To Take If You Make a Lot of Money and Don’t Know What To Do With It

HSA, health savings account symbol.
Nastassia Samal / Getty Images/iStockphoto

While many people struggle financially, others are at a point in their careers where they’re earning good money and have some extra cash on hand. If that sounds like you, you could be in a position to start saving or investing it to build wealth for yourself or future generations.

But if you’ve only just started making more money, or if you’ve never invested before, you might not know where to start. If you’re like most people, you might simply be putting that extra cash in a traditional savings account. Or you might be spending some — or most — of it on experiences or material items. You might even be using it to pay down short-term or high-interest loans and credit cards.

While any of these methods can be beneficial in the short or even long term, there could be better ways to use that money than to simply save or spend it.

To find out which other options you have when you make a lot of money, GOBankingRates spoke with Jeff Rose (CFP and founder of Good Financial Cents) and Nicole Strbich (CFP, CPWA, EA, and managing director of financial planning for Buckingham Advisors).

Here’s what they suggested.

Invest in Yourself

If you have extra money, one of the first steps you should take is to start investing in your own personal and professional development.

“Allocating money towards a personal equity fund, essentially investing in yourself, can yield invaluable returns,” Rose said. “This fund is dedicated to your personal and professional development, such as therapy, coaching, courses or attending conferences.

Investing for Everyone

“Investing in yourself not only enhances your skills and well-being but can also unlock new opportunities and enhance your earning potential in the future.”

If you’re on the fence about spending money on yourself, you could be limiting yourself when it comes to things like building wealth or improving your career or personal life.

“Many people struggle with the idea of investing in yourself,” Rose said. “Creating a fund specific to that gives you the freedom to explore opportunities for personal and professional growth, such as attending workshops, acquiring new skills or seeking mental health support, which can ultimately enhance your quality of life and potentially unlock new pathways in your career and personal endeavors.”

Contribute to a Non-Qualified or Non-Retirement Account

You might already have a retirement account — like a 401(k) — with your employer, but that doesn’t mean you should stop there. Strbich suggested opening and contributing to a non-qualified account, one not meant for retirement purposes that’s funded with after-tax contributions.

“Invest [in] this account so that it is balanced and coordinates with the timeframe of any potential distributions,” Strbich said. “Any funds needed in one to three years should be in fixed income or a money market, and funds that can stay invested longer can be held in equity investments.

“This allows your funds to remain accessible, have the potential for growth and [lets you] diversify your resources for retirement so that a portion of your distributions are not taxed at ordinary income rates upon distribution.”

Investing for Everyone

Any earnings or dividends may still be subject to capital gains, however.

Get Your Estate in Order

As you build your net worth, you also should get your estate documents in order as this will make it easier for any beneficiaries to inherit your estate when the time comes. But even if you don’t have many assets yet, it’s never too soon to get your affairs in order.

“If you don’t have estate documents — like a will, living will or power of attorney documents — in place, now is a good time to hire an attorney to work with to get these completed,” Strbich said. “If your documents are more than seven years old or you have had a significant life change, reach out to an estate attorney to see if updates are needed.”

Ensure You’re Maximizing Your Account Contributions

Many retirement accounts, including employer-sponsored 401(k)s and individual retirement accounts, have maximum annual contribution limits. If you’re not currently meeting those limits, you could be missing out on some serious savings opportunities.

“Confirm you are maximizing your current contribution opportunities,” Strbich said.

Once you reach a certain age — 50 years old in 2023 — you can make additional contributions to catch up as well.

Open Up a Health Savings Account

A health savings account (HSA) is a type of tax-advantaged personal savings account that can be used for qualified medical expenses. Like many other accounts, it comes with a maximum yearly contribution limit based on your age. If you have an HSA, make sure you’re contributing the maximum possible amount for the greatest benefit.

Investing for Everyone

But don’t spend your HSA funds if you can help it.

“Instead, pay for your medical expenses with other funds and let your HSA grow,” Strbich said. “Keep your qualified expense receipts so that when you need to take a distribution in the future you have qualified expenses to match up with the distribution so it is not taxable.

“Many HSAs allow you to invest your account balance above a certain amount,” Strbich added. “Once you reach this amount, and if you anticipate being able to let these funds grow for several years, don’t forget to invest these funds for future growth opportunities.”

Possible investment opportunities for your HSA include mutual funds, exchange-traded funds, stocks and bonds. You can either invest on your own or go through an investment management company that does it for you.

Invest in Alternative Assets

There are many types of alternative investments to choose from, including physical commodities, private equity, cryptocurrency, collectibles and hedge funds. While these assets come with varying levels of risk and returns, investing in a few could help you create a diversified portfolio.

“Diversifying your investment portfolio with alternative assets can be an intriguing option [that] can offer diversification and potentially hedge against market volatility,” Rose said. “According to a report by Deloitte, the global alternative assets under management were projected to grow to $21.1 trillion by 2025, indicating a growing interest in this investment space.”

If you’re not sure how to get started, you have options.

“Platforms like Masterworks and YieldStreet allow you to invest in non-traditional assets, such as fine art and legal settlements, respectively,” Rose said. “Masterworks, for instance, enables you to invest in shares of high-value artwork, attempting to provide appreciation over time. … On the other hand, YieldStreet offers investment opportunities in areas like real estate, legal finance and marine finance, aiming to generate passive income.”

Investing for Everyone

Before getting started with alternative investments, consider your risk tolerance, income and overall investment strategy to make sure they align with your situation and goals.

More From GOBankingRates


See Today's Best
Banking Offers