Amassing a savings of $50,000 marks a notable financial achievement, but the challenge often lies in deciding the best usage of such a significant sum. Whether to invest it, keep it liquid for emergencies, pay off high-interest debts, or fund major purchases is a decision that varies with individual financial situations. However, experts suggest there are certain actions to avoid to ensure the hard-earned money continues to be a source of financial security.

Financial advisors strongly caution against spending the savings on items that do not generate income. The allure of a substantial bank balance can lead to a temptation to splurge, but this could mean squandering the fruits of years of diligent saving. Sebastian Jania, owner of Ontario Property Buyers, advises figuring out how to use the $50,000 to generate further income, to pay for desired goods through the interest and earnings. Additionally, it’s crucial to strike a balance between investing the money and keeping it liquid, instead of going to the extremes of either scenario.

Smart Financial Moves: What Not to Do When Your Savings Reach $50,000

Avoid Spending on Non-Income Generating Items

Accumulating $50,000 in savings is a significant financial milestone. However, the temptation to spend it on non-income producing items can be strong. Sebastian Jania, owner of Ontario Property Buyers, advises against this. Jania suggests figuring out how to leverage the savings to generate more income instead of spending it on depreciating items such as cars, boats, or designer clothes. The generated income can then be used to pay for these desired goods.

Balance Between Keeping It Liquid and Investing

The dilemma of whether to invest the entire amount or keep it liquid for emergencies is another critical decision when you have $50,000 in savings. Robert R. Johnson, a professor of finance at Heider College of Business, Creighton University, recommends a balanced approach. He suggests keeping half of the funds in a liquid savings account or money market fund as an emergency fund. This fund should ideally cover six months worth of expenses and can protect against unexpected financial downturns like job loss or significant health setbacks.

Resist Lifestyle Inflation

The feeling of financial security with a substantial amount saved can lead to expensive lifestyle changes. Todd Stearn, founder and CEO of The Money Manual, cautions against succumbing to the temptation of significant lifestyle upgrades. Overspending on items such as an expensive car or home can quickly deplete your savings. Jania also emphasizes that in the current times of rampant inflation, $50,000 should be viewed more as an emergency fund rather than an opportunity to upgrade lifestyle standards.

Avoid Risky Investments Without Research

Investing wisely is a key to financial stability. However, rushing into risky ventures without due diligence can lead to significant losses. Annette Harris, owner of Harris Financial Coaching, advises against getting involved in dubious money schemes, like multi-level marketing, without proper research.

Don’t Leave It in a Traditional Savings Account

Traditional savings accounts offer minimal yield on balance. Therefore, financial experts recommend putting the money into a high-yield savings account. Jay Zigmont, founder of Childfree Wealth, encourages finding different ways to invest your savings, such as savings bonds and certificates of deposits, to bring in higher returns over time.

Paying Off Debts Without a Plan

While it may seem wise to use your savings to pay off debts, doing so without a plan can leave you in a precarious situation if an unexpected expense arises. Harris advises against paying off all your debts and leaving yourself with no savings. Balance is key, ensuring that you maintain a safety net for emergencies while managing your debts.

Takeaways

Accumulating $50,000 in savings is a commendable achievement. However, how you manage this money can significantly impact your long-term financial stability. Balancing between keeping some funds liquid and investing, avoiding lifestyle inflation, being careful with investments, and managing debts with a plan are all strategies that can help ensure your savings continue to build your wealth.