Most of us don’t have $10,000 burning a hole in our pockets. Naturally, if you have this sum laying around, your first response should be to pay off any outstanding debt. It’s the most risk-free, straightforward use of your funds. It’s also a good idea to pad out your emergency “rainy day” fund.
For right now, though, let’s imagine you have $10,000 exclusively for investing in yourself. Are you aiming for short-term gains, long-term growth, or a mix of both? Here’s how to responsibly make the most of this sum, as well as some fun ideas for where $10,000 can take you in 2023.
How to invest $10,000
Like we mentioned at the top, it makes sense to tackle any high-interest debt and then build your rainy day fund. After budgeting that out, it would be wise to use at least some of your $10,000 and learn how to start investing (if you haven’t already). Here are some of the basics of investing in your future.
Prep for retirement: Open an IRA
If you don’t have a 401(k) plan through your employer, you should open an IRA. You have some options to consider, but we typically recommend going for a Roth IRA in order to take full advantage of compound interest while minimizing your tax exposure. (We’ve previously covered the merits of a spousal IRA, too.) In 2023, you can contribute up to $6,500 per year into an IRA, or $7,500 per year if you are age 50 or older.
Prep for healthcare costs: Open an HSA
A health savings account (HSA) is the wise choice for setting aside tax-free funds to pay for approved medical expenses.
Note: You can only open and fund an HSA if you have a high-deductible healthcare plan. You can contribute up to $3,850 to an HSA in 2023.
Typically, the option to open an HSA will be offered by your employer. But if you don’t have employer insurance, you still have options: Here’s our guide to opening and funding an HSA.
Invest in mutual funds and ETFs
Index funds and exchange-traded funds (ETFs) offer broad market exposure and generally have lower fees compared to actively managed funds. They are ideal for investors seeking steady, long-term growth.
If you’re new to investing, mutual funds and ETFs are considerably less risky than other forms of investing, like building a stock portfolio, buying bonds, or getting into crypto. Instead, mutual funds and ETFs are both types of collections (or “baskets”) of individual stocks or bonds which are professionally managed by a provider like Vanguard.
Diversification is key to managing risk. Allocate your $10,000 across different asset classes, such as stocks, bonds, real estate, and alternative investments. This can help protect your portfolio from extreme fluctuations. Here’s our guide to building an easy “set and forget” investment portfolio.
If you were to earn a 10% return on your investment every year for 30 years, your $10,000 could grow to $174,000. Next article coming up: How to creatively spend your $174,000.
If you want to spend that $10,000
So you’ve got an extra $10,000 to spend above the investment strategy above. Here are some fun ways to splurge.
Start a business. According to the U.S. Small Business Administration, most micro-businesses cost around $3,000 to start, while most home-based franchises cost $2,000 to $5,000. Here are questions to ask yourself before embarking on your entrepreneurial adventure.
Travel. Some quick browsing reveals that economy roundtrip plane tickets from New York City to Rome right now are a little over $3,000. To Tokyo is about the same. To Reykjavík (that’s the capital of Iceland), it’s about $2,000. For brainstorming and budgeting your dream trip, here’s how to build out the ultimate travel spreadsheet.
Remodel your garage. With today’s real estate market, $10,000 won’t take you very far when it comes to buying property—but you could renovate what you already have. According to Rocket Mortgage, a complete garage remodel will cost around $7,000—$15,000, and even small upgrades (like a garage door replacement) can add significant value to your home.
Take online courses. While $10,000 is only a fraction of most university tuition costs, you can opt to enroll in one or two individual online classes at a time. According to U.S. News and World Report, online classes cost $282 per credit hour, on average (most schools require 120 credits to graduate, but you may not be looking for a degree here). This means a full course load of 12 credit hours costs around $3,400 per online semester.
Collect a classic car. Peruse Autotrader Classics to acquire a sick ride in your budget. For instance, this 1984 Ford Mustang GT Convertible was recently listed at $9,294.
Go for an experience. Investing in memories will always mean more than material possessions. Think of all the concerts, shows, and fancy dinners you can afford with an extra 10,000 smackeroonies.