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09/05/2018 – What to do with Small Amounts of Money

I hope you had a nice Labor Day weekend!  Many of us are "back in the saddle" today, doing the labor that we celebrated this weekend.  :)

I want to talk about a subject that comes up from time to time.  People occasionally ask me how they can start investing.  Some people who ask that may want strategies and details about specific investments while others may simply want to know how to have extra money left at the end of the month so they can get started on the right track.

I thought it would be good to address the subject of what to do with small amounts of money.  I hope you'll benefit from this and I would welcome your thoughts and opinions, if you want to write back.

The top 5 best ways to invest small amounts of money:

  • Employer Matched Retirement Plans
  • Bank Savings
  • Pay Down Debt
  • Your Own Retirement Plan
  • Your Own Skills

1) Employer Matched Retirement Plans - If you are employed somewhere that has a 401k with an employer match, it is VERY important to take advantage of that.  This is "easy money" because it is like getting a bonus.  It is also easier than most saving or investing because it is taken from your check before you ever get the money.

2) Bank Savings - It is wise to keep your emergency fund (ideally, 3-6 mos of living expenses) in a very liquid account.  This money has a different purpose than investing (for retirement or college) and it shouldn't necessarily be put at risk.  These funds are your safety net in case of emergency.

3) Pay Down Debt - There are different schools of thought on this, but I think most everyone would agree that high-interest debt that isn't secured with some kind of asset should be paid down as soon as possible.  Debt that is secured (such as a house or car loan) does not usually have rates as high as unsecured debt and it is also safer to hold - since you could usually sell the asset and pay off the debt if you needed to.

4) Your Own Retirement Plan - If you are investing at work, have your emergency fund in place and your unsecured debt under control, the next step is to start your own IRA of some kind.  There are different choices based on your age, tax situation, and so forth.  A trusted financial adviser can talk to you about your choices and help you learn how to get started.  Hopefully, the adviser will also develop a relationship with you such that you can ask questions, learn from the process, and continue to grow and expand your investment knowledge.

5) Your Own Skills - Along the way, there are times when it is wise to take some of your extra money and invest in yourself.  Maybe you've been wanting to get a certain certification or licensure for work.  Maybe you want to learn a certain skill set or go back to college. When you are intentional about investing in yourself, the dividends can really pay off.