I have $5000, what should I do with it?
We often get emails from our readers asking different questions. As we are not qualified financial planners, the concept of giving advice can be a bit tricky. We do however have considerable personal knowledge of what has worked for us – so in turn share that advice, knowing full well that everyone’s situation is different and that all of you reading this should consult a financial professional before making any decisions!
So what is the most commonly asked email we get from our readers?
I have $5000 left over from saving – what should I do with it?
OK so imagine this. You are saving for a holiday. You setup a budget spreadsheet to save perhaps $10,000 over 12 months for your big trip. Come time to book the trip, you realize the trip is only going to cost you $5,000 due to some travel specials you found online. You now have $5000 left over, what should you do with your left over savings?
You have multiple options for your left over money, which should you choose?
There are so many things you could do with $5000. The silly people will go out shopping and splurge on themselves. The smarter people will look for ways to grow that money, enhance their financial position and make that money work much harder for them than a pair of shoes or a new t-shirt ever could!
So what are your options?
Paying down credit card debt
Credit card debt can be the little devil that eats away at your lifestyle. It gives you instant gratification over a purchase followed by months of repayments.
Credit card debt has actually eclipsed mortgages in Australia with Australians owing more on credit cards than they do on mortgages. Now that is big money!
Why not be proactive and use the $5000 saving to pay off your credit card debt. An average card will charge you anywhere over 10% interest and sometimes as high as 20% – so really this is a must do. Your credit card is costing you money in interest so pay it off right away and you will save yourself some money!
Investing the money in assets to get a return
Why not try and turn your $5000 into $10,000? Have a chat to your local bank/financial planner and see if they can help you start an investment program in shares or managed funds to help grow your money. If you do not need the $5000 for 10 years, you can forget about it and invest in something with low risk and long term interest.
Make a lump sum payment to your mortgage
This will blow you away! Want to know how your $5000 can save you $14,922.31?
Make a lump sum payment on your mortgage. This means an extra payment above and beyond what you must pay per month or fortnight.
Consider this: You have a $500,000 home loan at a 7% interest rate. Your loan is for 25 years and you are 5 years into your mortgage. If you deposit a lump sum payment of $5000 on your loan, you will save yourself $14,922.31 in interest and 6 months worth of repayments – how amazing is that?
All of a sudden your $5000 has turned into $14,922.31 – not a bad return!
Start an emergency fund
We always stress the need for an emergency fund. Put this money aside and try not to touch it. Place it in a high interest savings account and forget it was ever there. One day in the future you will need to call on the money and you will have the original sum + whatever interest you have earned.
Start an account for your kids education
I will forever love my parents for this. When I was born they started putting away tiny bits of money for my future education. This means that by the time I was ready for high school, they were able to enroll me in an amazing school that helped me greatly. I will forever be thank full for their little bit of prior planning. Love you mum and dad! This is easily the best thing you can do for your kids future and $5000 can go a long way!
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One Response for I have $5000, what should I do with it?
Hi Alex, Agree with your advice.
I would put paying off the home loan as number one. Forget paying off the credit card – you should never have anything outstanding on your credit card anyway. If you can save – you can pay it off monthly. It is crazy how credit card debt has exceeded mortgage debt.
Before you put the $5K into your mortgage I would check what features you had on had on your mortgage. Get a loan re-draw facility setup if at all possible. This means that if you ever run into an emergency in the future you can always re-draw on all the extra money you’ve put down on the loan. It’s much better than keeping the $5K in another account where you’ll be earning less interest and you’ll be taxed on this interest.
Regarding kids education, I would say the same thing. Better to pay down the mortgage and then you can re-draw when you need to help the kids.
If you don’t have a mortgage I’d say buy shares.
Thanks again for the tips. I’ll look forward to reading more money saving ideas. Regards David
