You worked incredibly hard to build up your savings account. Maybe you took on a few side gigs or even a second (or third!) job. Perhaps you moved in with friends or relatives to save money on housing costs. However, you did it, and when you look at your savings account and see that big number, you feel really proud of yourself…and a little bit scared. You worked so hard for all of that…now what?
Hey Big Spender
There are many out there reading this whose first impulse will likely be “go buy that big thing you always wanted but couldn’t ever afford!” If that “big thing” is a home or a new car to replace your old junker, this might be a good idea. A home appreciates in value, and a new car will be less costly overall than the amount of money you poured into that old junker to keep it running for just a few more days. If, however, the “big thing” is something superfluous like a giant TV or a trip to Europe, it’s better to hold off for a while.
Crush Your Debt
If you’ve been working to pay down your debt while building up your savings, you might consider using what you’ve saved to just finish off the debt altogether. If you can do this and still have a sizeable chunk of your savings left over, go for it. Funnel the money you were spending on debt payments into your savings account and you should have it rebuilt pretty quickly. If you still owe a lot, however, be careful here. Don’t take more than 30% out of that savings account to pay off your debt.
Investing for Success
This is where the real money is. One of the best things to do with money you’ve saved is to use it to make more money through the investment process. Tread carefully here! Don’t pour all of your savings account into ownership of a single company’s stock (yes, even if that stock is Apple’s). A good investment portfolio is diverse and you should build it up over time.
More importantly, unless you have a background in finance, you’ll want to spend some time learning about investing and how the market works. There are plenty of ways to do this. You can check books out from the library, watch videos online, take a class through a venue like Simpler Trading, etc.
Whichever route you choose, start small. Remember: investing is a lot like gambling. You should never put in more money than you can afford to lose. The simplest type of investment to start with is a CD, which is basically like a fancy savings account that you can’t access for a couple of years. If that seems boring, you might try looking into a short term treasury bond. Those are great because whatever happens, market-wise, you’ll always get back at least your original investment.
As you learn about the market you can expand into stocks, utilities, mutual funds, agriculture, precious metals, etc. You might even try binary trading, a very short term investment in which you try to predict what the market will do within a given time frame. If you’re right, you get more money. If you’re wrong, you lose your investment (remember what we said about gambling).
You might also be tempted to take your savings and invest it into a startup or use it to fund the starting up of your own company. It’s important to be careful here: make sure you have a solid idea and business plan in place before you quit your day job. Make sure your savings can cover you for a minimum of six months of living expenses. The best avenue here, as tiring as it might sound, is to start building your business in your spare time so that when you are ready to leave your day job the business is already profitable.
Investing in someone else’s company is also risky. Most of the time as an investor you are something of a silent partner. You agree to fork over your money in exchange for a portion of the profits and share holdings of the company once it is successful and your original investment has been paid back to you. If the startup is successful you might find yourself flush with enough cash to not need a day job. Of course, if it tanks, you lose your initial investment.
There are lots of options for how to use your savings to your best advantage. The great thing is you don’t have to decide right now. Keep saving while you decide which avenue is best for you!