There are worse problems than trying to figure out what to do with $30,000.
You may be thinking: I have a lot of money to play with! But be careful because it’s also a lot of money that could potentially be wasted. A big windfall offers the opportunity to get your finances in order and prepare yourself for the future.
These are some of the best financial decisions you can make with that kind of money.
1. Pay off debts
One of the best decisions you can make with your money is paying off high-interest debt, such as credit card debt. Credit cards can have interest rates of 20 percent or more, so paying off that debt is one of the best investments you can make. According to Experian, the average credit card balance increased 13.2 percent to $5,910 in 2023.
A cash windfall from an inheritance or performance bonus could be a great time to pay off much or all of your high-interest debt. You must pay off the balance aggressively to avoid paying interest for years.
2. Build your savings
According to a recent survey from Bankrate, only 43 percent of Americans have enough savings to cover an unexpected thousand-dollar expense. One in four Americans would finance the costs with a credit card, the survey found.
Financial planners recommend that you keep three to six months’ worth of expenses in a high-yield savings account as an emergency fund, to give yourself a little support in case you suddenly lose your job or face significant unexpected expenses.
3. Put it towards your retirement
According to a recent survey from Bankrate, more than half of Americans say they are behind on saving for retirement. While many factors contribute to the deficit, inflation was the top reason Americans cited for not contributing more to their pensions.
Life is expensive, incomes are growing slowly and many are struggling to make ends meet. But your $30,000 should give you the coverage to contribute more to your employer-sponsored 401(k) plan, if you have one. The goal is to set aside 10 to 15 percent of your income, including any match from your employer. You can also contribute to a traditional or Roth IRA, which offers more investment choices and similar tax benefits.
4. Save for college
Americans also find it challenging to save for college. Rising tuition and financial pressure on families have contributed to student loan debt reaching near-record levels.
If you have children, invest in their future by opening a 529 college savings plan or even a Roth IRA.
There are pluses and minuses to each approach. The key is to start putting money away early.
5. Open a simple investment account
Do you consider your $30,000 a ticket to make even more money?
Instead of looking for the next Apple or Amazon, focus on building a diversified investment portfolio consisting of low-cost mutual funds and exchange-traded funds that will deliver solid returns over time.
You don’t have to spend a lot of money to get where you need to go. Major investment managers, such as Fidelity and Vanguard, offer a number of one-stop funds that do the diversification for you.
Or you can opt for a target-date fund, which aligns your portfolio’s asset allocation with a date in the future when you need the money. That means you own more stocks when you’re far from the target date, and more bonds as you get closer to the target date. For even more security, find the best CD rates and add some certificates of deposit to the mix.
6. Let a robo-advisor do it for you
If you’re not interested in managing a portfolio yourself, consider opening an account with a robo-advisor. Robo-advisors use algorithms to create portfolios for clients based on their financial goals and risk tolerance. You answer a few basic questions to get started and the robo-advisor takes care of the rest.
You won’t get the same hands-on attention you get from a traditional financial advisor, but robo-advisor fees are significantly lower than a human advisor.
Betterment and Wealthfront are two of the most popular robo-advisors, offering features like tax-loss harvesting and portfolio rebalancing.
Do you need expert guidance when it comes to managing your investments or planning your retirement?
Bankrate’s AdvisorMatch can connect you with a CFP® professional to help you achieve your financial goals.
— Taylor Tepper wrote an earlier version of this story.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
