If you’ve come into $10,000 and want a sound way to invest it, pay close attention. Finding the best way to invest $10,000 is much easier than you imagine it to be.
Investing in stocks, an idea, your business, or your future may seem daunting at first. But once you have a notion of what it requires from you, it’s a whole lot less scary.
The pros and cons of investing
When making any type of financial commitment, you need to first weigh out the pros and cons. How will it make your financial life easier or more secure to put $10,000 into it? If you’re not able to answer that question right away, take some time to think about it.
For most people, $10,000 isn’t a drop in the bucket. That is unless you’re Mark Zuckerberg or some other wealthy person. It’s not enough money to sink you for life, but it’s enough to change your life if invested the right way.
Investments that started on less than $1,000
Tommy Hilfiger started his business on a $150 investment. He later sold it to Phillips-Van Heusen for $3 billion in 2010.
Check out this video of Tommy Hilfiger’s success story (it’s 36 minutes long, but the intro is cool), courtesy of The Business of Fashion:
Ricky Scott and Robbie Edwards took a $500 investment and turned it into The Kingston group. They operated out of the spare bedroom in Edwards’ home and made use of equipment he already owned. It’s now doing $3.9 million a year in sales.
The point is this – it doesn’t matter how much you invest, the focus is on how you invest it. The suggestions mentioned here can serve as a guide to your financial future. If you’ve had no experience investing in the past, throwing down $10,000 can be a tough pill to swallow.
Through careful research and tried and true stories of success, I’m hoping to ease your mind. Use these ideas to help you grow your money into something more significant in value. Here are some ideas that could get you out of debt or turn your $10,000 into a fortune.
The best way to invest $10,000
Let’s get into it – here are some of the best ways you can invest your $10,000:
1. Start a small business
As I just showed, people have started businesses on little money. They’ve made significant profits as a result of their hard work and determination, too.
If you have a great idea that needs a little seed money, $10,000 may be just what you need to launch your business. Dedicate a space in your garage for business purposes, roll up your sleeves, and get busy.
There are many resources online that address starting a business with little cash. Learn from other’s experiences by doing a lot of initial research before spending money.
The U.S. Small Business Administration’s website is a great resource for small business owners. The SBA blog provides valuable insight into what it takes to start and stay in business as a new entrepreneur. They also offer many different publications and classes.
Here are some other good websites worth looking into:
2. Max out a Roth IRA
The Internal Revenue Services’ (IRS) contribution limit for IRAs is currently $5,500. There’s also a catch-up contribution limit of an extra $1,000 for men and women 50 years old and older.
Your IRA contribution is deductible if it meets the criteria specified by the IRS. Considered are things like:
- Your filing status
- Adjusted gross income
- Whether you are covered by a retirement plan at work
The phase-out range for people with a workplace retirement plan is:
- Singles and heads of households are $61,000 to $71,000
- Married couples filing separately is $98,000 to $118,000, as long as the person making the IRA contribution is covered by a workplace retirement plan
- Married couples filing separately is $0 to $10,000
The phase-out range for people not covered by a workplace retirement plan is:
- Married couples filing separately is $183,000 to $193,000, as long as a person’s spouse is covered by a workplace retirement plan
Another thing to take note of is the ability to take the full deduction up to the year’s contribution limit. You can do this as a single or head of household filer without a workplace retirement plan. It doesn’t matter what your income is.
Are you a married couple filing jointly or separately with neither spouse covered by a workplace retirement plan? You also may take the full deduction up to their contribution limit without income considerations.
If any of this IRA mumbo jumbo confuses you, read this comprehensive guide on all things IRAs.
3. Max out a 401(k) … almost
If you haven’t maxed out your 401(k), consider using your ten grand to do just that. The IRS allows $18,000 in regular contributions and an extra $6,000 in catch-up contributions for people 50 years old and older.
If your employer matches your investment in any way, you’ve made a significant investment in your future as a retiree.
If you’re self-employed, you’re looking at higher contribution limits. $53,000 is the most you’re able to sink into your retirement fund each year.
The compensation limit is at a historical high too, jumping $5,000 each year to a record $265,000 in 2015. It could easily be the best way to invest $10,000.
4. Pay off credit card debt
Credit card debt is among the hardest debt to get rid of. Besides interest, you may pay annual fees and other charges just to have a line of credit you can access when you need it.
A survey conducted by Harris Poll on behalf of NerdWallet found that the average household carries $129,579 in debt. If that wasn’t alarming enough, $15,355 of that amount is credit card debt!
If you can transfer the balance of a high-interest rate credit card to a new card with 0% interest, by all means, do so. Just make sure you’re responsible enough to pay it off once the promotion ends. This would allow you to save your $10,000 and invest it another way.
If you don’t have that option and find that the interest alone is eating you alive, pay off the card and note the savings you bank by doing so.
5. Open a 529 college savings plan
Fund a 529 account for your child or grandchild’s future education. The IRS states that contributions are not tax deductible. Earnings, though, are not subject to federal and state tax when used by the beneficiary for qualified expenses.
Your child or grandchild may use the money towards tuition, fees, and books as well as room and board while in college.
In the past, a 529 excluded the cost of computer technology and internet services. It’s now considered a qualified expense as long as it’s used for education purposes. Related peripheral equipment including printers and software used for school also qualify.
Having trouble understanding 529s? Check out US News’ comprehensive guide on 529 plans.
6. Pay off your auto loan
If you owe less than $10,000 on your vehicle loan, pay it off. Every car depreciates in value once it’s driven off the lot.
You’re not doing yourself any favors carrying that much debt in the form of four wheels. Paying off a loan early can improve your credit score which helps build your reputation as a borrower.
If that isn’t enough reason to pay off the debt, the amount of cash you free up each month is. Instead of paying on the car loan, you’re able to apply that money to another debt or put it into a high yield savings account where it makes money for you.
7. Put the money in a high yield savings account
The advantage of putting your money in a high yield savings account is obvious. The higher the balance, the more you earn.
Keeping the money in the bank provides you with safety and security you don’t find at home. If something were to happen, an FDIC-insured bank covers your savings up to the maximum allowed by the law.
More importantly, if you need cash due to an emergency situation, you can borrow from yourself. This way you don’t have to take out a loan or get help from family and friends.
Spending time doing research on banks and rates is probably worth having peace of mind. Bankrate.com is a good site for looking up current deposit rates.
A $10,000 investment in your future is rather significant. Rather than squander it away on household bills or menial purchases, put it to better use by following the suggestions listed here.
You may not build a real estate empire like Trump or become the next Buffet. But you will be that much more financially secure going forward.
The best way to invest $10,000 relies on your priorities and financial situation. If you’re in debt, it makes sense to pay it down before launching a new business venture.
Take time to decide how you want to spend your windfall. After all, you’re the one who has to live with the decision.
How have you (or would you) invested $10,000? Please share in the comments directly below!
Chris is the founder of Money Mozart, a blog about personal finance. He discusses frugality, minimalism, and achieving financial independence by living well below your means. He’s also an avid craft beer lover and an aspiring minimalist.