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5 Things to do with $10,000 Today

So you have a nice chunk of money saved up in cash?  That's not a bad problem to have, but you likely know that leaving that money sitting idle is not the best use of those funds.  Worse, cash sitting without a destination for too long will often get blown on an unnecessary purchase (akin to the expression of cash burning a hole in one's pocket).  So what's the best way to put those funds to work?  Here are 5 ways you can put a lump sum of cash into action today and better your financial standing.

1 - Establish an Emergency Fund

This is first in the list because of its importance.  If you don't have a set amount of funds earmarked as a emergency reserve (and dedicated towards noting else), then this is where you need to park your current cash.  Establish a separate savings account to house this money.  There are plenty of online options at your disposal that will likely pay you a higher interest rate than you will find at your brick and mortar institution.  I use Discover Bank because their customer service is incredible.  A well funded emergency reserve should total between 3-6 months worth of all your family's spending needs.  This will provide you a nice financial safety net when life deals you a blow.

Side Benefit:  Having this cash cushion in place allows for a significant boost in peace of mind.  Most need a bit more of that so that they can better hone in on the truly important parts of life.

2 - Pay Off Bad Debt

First, let's make sure we note the fact that not all debt is created equal.  Mortgage debt, for example, is generally issued at a reasonable interest rate, has tax benefits, and is used towards a purchase that will likely appreciate (real estate).  On the other hand, bad debt (such as credit card debt, high interest student loans, cash advance loans, etc.) can wreak havoc on your ability to save and grow your money.  If carrying a balance on anything that has a 5-6% interest rate or higher, use your free cash to help pay this balance down.  Compounding interest works magic to your financial picture when you're growing assets and saving, yet has an opposing perpetual impact when you're stuck in bad debt.  You want to be snowballing forward, not backwards.

3 - Put Your Money to Work

I recently wrote a piece on some different ways to grow your passive income streams.  Pick one of these options in which you feel most comfortable, deploy those funds, then watch the money roll in.  With cash flow focused investing, think of each dollar saved as a dedicated worker for you, growing your personal economy in an effort to put more and more cash back in your pocket.

Side Benefit:  Witnessing your savings earn real cash can be very motivating.  There is an immediate gratification that can become somewhat addictive, making most people excited to find ways to become power savers.

4 - Ramp up Retirement Savings

I understand that not all are on on board the passive income train.  But no matter your preferred approach, you must strive to become a power saver if you are hoping for a future life of abundance.  Therefore, if you are not currently maximizing your retirement plan contributions, now would be the time to play catch up with that extra cash.  See this table of contribution limits per each type of retirement savings account, provided by the folks at ProNvest.  Investors over 50 years old have the added benefit of contributing extra to these plans in the form of "catch-up" contributions.

5 - House Hack

House hacking is a term coined by the guys at BiggerPockets.  In essence, house hacking entails buying a multi-unit dwelling, living in one unit and renting out the remaining unit(s).  By doing so, the idea is that you can significantly reduce or eliminate your housing expense.  In some cases, you might even end up cash-flow positive!  Imagine having that large burden removed from your budget.

A borrower who plans to occupy a property can qualify for an FHA (Federal Housing Administration) insured loan, which carries flexible lending standards.  Closing costs and repair costs can be wrapped into different variations of these loans, with as little as 3.5% down.  At 3.5% down, a $10k downpayment could land you a $285k property.  Keep in mind that borrowers of FHA loans are required to pay for mortgage insurance (there is always a trade off) which will add a little extra to your monthly payments.

Side Benefit:  FHA loans do require borrowers to occupy a property for a minimum of 12 months.  After that period expires, there is nothing preventing the owner from moving out and treating the location purely as a rental property.