10 Best Money Moves To Make Every Time $5,000 Is Deposited in Your Checking Account
If youāre receiving $5,000 as part of your monthly income, youāre in an ideal position to build up your wealth ā as long as you make the right money moves once that deposit hits your bank account.
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āWhen handling a $5,000 deposit, itās crucial to approach the situation with a well-rounded strategy that addresses immediate needs, future growth and financial security,ā said Brendon McCullough, founder and managing director of Dealhack.
Here are some of the top savvy money moves to consider, according to experts.
Build or Reinforce an Emergency Fund
Your first priority should be ensuring you have a solid emergency fund. Financial experts typically recommend having three to six monthsā worth of living expenses saved.
āThis fund serves as a safety net for unexpected expenses, such as medical emergencies, car repairs or job loss,ā said McCullough. āIf your emergency fund is lacking, allocate a portion of the $5,000 deposit to bolster it.ā
Ben Klesinger, co-founder and CEO of Reliant Insurance Group and Helping Hand Financial, also advised building up an emergency fund. āHaving extra cash on hand for unexpected bills is reassuring. Aim to save enough to cover three to six months of essential expenses. Even putting aside $1,000 of the $5,000 for this fund is a good start.ā
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Pay Down High-Interest Debt
High-interest debt, such as credit card balances, can significantly hinder financial progress.
Allocating funds to pay off or reduce high-interest debt, according to McCullough, can save you money in the long run by decreasing the amount of interest youāll accrue. āFor example, paying off a $5,000 credit card balance with a 20% interest rate can save you about $1,000 annually in interest payments.ā
Klesinger agreed that itās crucial to pay off high-interest debt first. āIf you have any credit cards or other loans charging over 10% interest, use that $5,000 to pay them down or pay them off. Thatās an instant savings and reduces your long-term financial stress.ā
Invest In a Retirement Account
Contributing to a retirement account is another strategic way to ensure long-term financial stability. Depending on your situation, experts recommend contributing to an IRA or 401(k).
āThese accounts offer tax advantages that can help your money grow more efficiently over time,ā said McCullough.
Klesinger shared the same advice. āMax out any retirement contributions youāre eligible for, like an IRA.ā In 2024, you can contribute up to $7,000 to an IRA if youāre under 50 years old ā those 50 and older can contribute up to $8,000.
āPutting that money into the market now allows it to grow tax free over the long run. Time is your greatest ally when building wealth,ā Klesinger explained.
By regularly investing, you take advantage of compound interest, which can substantially increase your retirement savings over the decades.
Diversify Investments
If your emergency fund is robust and you have no high-interest debt, you should also consider investing in a diversified portfolio.
āDiversification helps mitigate risk by spreading investments across various asset classes, such as stocks, bonds and real estate,ā said McCullough.
Investing $5,000 into a diversified index fund or ETF, he explained, can provide growth potential while managing risk. āHistorically, a well-diversified portfolio has yielded an average annual return of about 7%-8%.ā
Enhance Your Skills or Education
āInvesting in yourself is one of the best financial decisions you can make,ā said McCullough.
Consider using part of the deposit to enroll in courses or certifications that can advance your career or improve your earning potential. āFor example, a project management certification or an advanced coding course can open doors to higher-paying job opportunities.ā
Contribute to a Health Savings Account (HSA)
If you have a high-deductible health plan, contributing to an HSA can be a smart move.
āHSAs offer triple tax benefits: contributions are tax-deductible, earnings grow tax-free and withdrawals for qualified medical expenses are tax-free,ā McCullough explained. āIn 2024, you can contribute up to $3,850 for individual coverage or $7,750 for family coverage.ā
Consider Real Estate Investments
If youāre open to a longer-term investment, real estate can be a lucrative option.
āWhile $5,000 wonāt buy a property outright, it can be used as part of a down payment on a rental property or invested in Real Estate Investment Trusts (REITs),ā McCullough advised.
This kind of investment can provide a steady income stream and potential appreciation over time.
Donate to Charitable Organizations
According to McCullough, allocating a portion of the deposit to charitable donations can provide not only a sense of fulfillment but also potential tax benefits.
āDonations to qualified charities can be deducted from your taxable income, reducing your overall tax liability,ā he said.
Enhance Your Financial Knowledge
Experts recommend using a portion of the funds to access financial planning resources or consult with a financial advisor.
āProfessional advice can provide personalized strategies tailored to your unique financial situation, helping you maximize the impact of your $5,000 deposit,ā said McCullough.
Save for Future Goals
Lastly, consider setting aside funds for future goals, such as a home purchase, vacation or major life event.
McCullough noted that having a dedicated savings account for specific goals can help you stay focused and motivated, ensuring that your financial decisions align with your long-term aspirations. āBy implementing these strategies, individuals can effectively manage their $5,000 deposits, ensuring that their money works for them both in the short and long term.
āItās all about balancing immediate needs with future growth and security.ā
Klesinger agreed. āThatās what Iād recommend doing to set yourself up for future financial success ā¦ Pay down debt, contribute to retirement, start an emergency fund and invest for the long run. Simple steps, but powerful when done consistently over time.ā
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