Saving up $50,000 is a significant milestone, one that can provide a bit of financial security in life. But many people aren’t quite sure what to do with such a substantial amount of money once they have it. Is it better to invest it or keep it liquid in case of emergencies? Should it be used to pay off high-interest debts or to fund other big-ticket purchases?
What you do with $50,000 is ultimately up to you, but certain options are financially smarter than others. Here are several things you should avoid doing once you have that much money saved up.
Spend It on Things That Don’t Generate Income
Having a lot of money in the bank can increase the temptation to spend it. But this is one of the worst things you can do, considering how much time and work likely went into saving it up in the first place.
“The top thing that one should not do when they have $50,000 in savings is to spend the money on things that do not produce income,” said Sebastian Jania, owner of Ontario Property Buyers. “One such example would be to spend the savings on a car, boat or even designer clothes. What one should really do is to figure out how they can take the $50,000 and make more money using it to then be able to pay for those goods that one wants through the interest and earnings.”
Keep It All Liquid — Or Invest It All
Once you have $50,000 in savings, you may be debating about whether you should invest it or keep it liquid — in this case, easily accessible in a savings account. On the one hand, investing that kind of money could be financially beneficial down the road. On the other hand, you might run into trouble that requires a bit of extra cash on hand.
Rather than go to extremes, consider a 50/50 split.
“If [you’ve] accumulated $50,000 in savings, [you] should keep half of the funds in a liquid savings account or money market fund to serve as an emergency fund,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Heider College of Business, Creighton University. “[You] should have an emergency savings fund. Most financial advisors prescribe six months expenses for emergency savings. This fund is meant to cover life’s unexpected black swans — like losing [your] job or a significant health setback.”
Having some money in savings can keep you afloat in times of emergency, so keep some of it liquid just in case.
Inflate Your Lifestyle
The average U.S. household savings is around $5,500, according to the Federal Reserve. So when you have $50,000 sitting in the bank, you might feel pretty good about your finances. And that’s not a bad thing unless you start making expensive decisions like moving to a more expensive apartment or buying a new vehicle you don’t need.
“Do not succumb to the temptations of oversized lifestyle upgrades,” said Todd Stearn, founder and CEO of The Money Manual. “Have fun, splurge a little. But remember, job losses happen, the economy can change or health issues can pop up, so take care of the future-you first. Buying an expensive car or expensive home can quickly deplete your savings. Present you definitely deserves a vacation. Future you might regret blowing your budget on lavish vacation upgrades that you can’t really afford.”
“In today’s times, $50,000 should really be looked at as an emergency fund, rather than something to spend on improving one standard of living,” Jania added. “Further, because inflation is still rampant, if one chooses to increase their standard of living, the cost of that will likely go up even more over time.”
Take on Risky Investments — Unless You’ve Done Your Research
Investing wisely can help you build financial stability. But investing in ventures you haven’t thoroughly looked into can cause more problems than it solves.
“Don’t invest in risky ventures without doing your research first. Stay away from money schemes that tout that you can double your money in less than a year or require you to recruit others to gain from your investment,” said Annette Harris, AFC, FFC and owner of Harris Financial Coaching. “These multi-level marketing schemes rarely result in you receiving a benefit and are consistently the topic of the show ‘American Greed.’ The last thing you want is to lose your hard-earned savings because of a bad investment.”
Leave It in a Traditional Savings Account
Most traditional savings accounts offer minimal yield on your balance, so at the very least, you should put it into a high-yield account.
“Keep in mind that if you have $50,000 in savings, you want to keep it in a high-yield savings account. A traditional savings account at your local bank is likely to have a very low interest rate, while a HYSA might be almost 10x the interest,” said Jay Zigmont, PhD, CFP®, founder of Childfree Wealth.
“Don’t let your savings sit in a low-interest savings account,” Harris added. “Find different ways to invest your savings to help you grow it. Research high-interest savings accounts, savings bonds and certificates of deposits to bring in higher returns over time. These are relatively safe investments that ensure that your money continues to grow.”
Pay Off All of Your Debts Without a Plan
“Having more in savings does not necessarily make you more secure financially. If you have $50,000 in savings, but still have debt, you should probably use the money to pay off your debt,” Zigmont said. “If you have no debt, your next goal should be [to put] three to six months of savings in an emergency fund. If you have no debt and three to six months in an emergency fund, the remainder should be invested toward your goals.”
But keeping that in mind, you might not want to spend all $50,000 on your debts. After all, if you do that and have nothing left over, you could end up in trouble if something unexpected happens later.
“Don’t pay off all your debt and leave yourself with no savings,” Harris said. “If you pay off all your debt, you may face an emergency that requires a substantial amount of money. It could be a medical emergency, necessary car repairs or damage to your home caused by a natural disaster. You want to make sure that you have money in savings that can help you get through unexpected situations.”
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