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Financial Jiu Jitsu will teach you how to gain leverage in the real world, step by step, until you are confident you no longer need more.

Got 5k right now? Here's what to do with it

Got 5k right now? Here's what to do with it

First of all, kudos to you for saving money and not blowing it on something new and fancy to impress others. Because you're reading this article, I know you must have saved some money up right?

The thing about money for the working class is, that stuff is hard to come by but so easy to get rid of. It feels good to spend that money and spending is so natural. Then of course you need more money and earning money is about the most unnatural thing in the world. The cycle repeats ad infinitum.

It boils down to a list of financial priorities. Here are mine:

  1. Have 6 months of cash on hand as a reserve in case the world explodes and you can't earn money.

  2. Invest the rest toward financial freedom

Long story short, deciding what to do with your 5,000$ can be a very simple process. If you don't have a 6-month-all-expenses-paid-liquid safety net that is separate from your checking account, then put all your money into one until you do. What do you do with that safety net when it is complete? Don't touch it! Or if you feel you have evolved beyond basic financial strategy, and you can't keep still, then do something with it

think hard money wizard

think hard money wizard

Assuming you got your safety net on lock, then the fun begins. Now you get to spend your money in a strategic manner that is more inherently offensive maneuver instead of defensive. Now we have Investment options. Here are some good ones:

Some investments cost more than 5,000$ - but 5k is a good start towards one of these big ones:

  1. Real estate/rental property - offers killer rate of return if you are employed and looking for tax breaks. I am rooting for Tucson, AZ though the options are limitless. I estimate 31% return on rental property investments in my article there. 
  2. Real estate/primary residence - great for writing off loan interest payments and taxes. Can eventually be sold or turned into a rental property. The benefits for this are many and may even return more than a rental in the long run if you consider you aren't renting (throwing money away) anymore. 
  3. Real Estate/ Crowdsourcing investment - allows you some benefits of real estate with insulation from some risk. Perhaps this is not the ideal first investment. 

Here are some things you could put 5k into when that is all you got and you don't want or don't feel the need to take on the benefit/risk profile of real estate:

  1. Stock market! this can be individual stocks/bonds. I don't like it but lots of people do. 
  2. Stock marked with robo-advisor like Betterment - I like this because you can adjust your exposure based on how much risk you want to tolerate. No minimum to try it! (you can also do this with your 401k)
  3. CD's - Now rates are very low for this, so not many people should consider it. But it is an option, after all it is much better than doing nothing and it is very much risk-free. 
  4. Paying down low interest debt! If you have normal debt payments, pay down the one with the highest interest rate. If the interest rate is lower than say 4% like most home mortgages nowadays, it might be better to invest somewhere else in the long run, but paying off debt does feel good. 
  5. Paying down High interest debt - Do this asap. Credit cards, payday loan advances need to be paid asap no exceptions. Pay your credit cards every month period. 
  6. Pay down your car - Pay the bad boy off and free up some monthly capitol. Then never buy a car you can't pay cash for ever again because it's a total waste.
  7. Refinance - yes refinancing can cost money and often it is one of the best-returning investments you can make. Run some calculations to see how much a cash-in refi would save you in the long run. 

Whew, there are quite a lot of options here. I have personally used every single one of them listed above in my short time on this earth and have developed my preferences as such. Most of the things in the latter list are things you can try without a huge amount of money or long term risk, so I would recommend them to noobies. The real estate based investments are much more involved and the money is much more out of reach. So perhaps wait until you are good and versed with the financial system before trying anything from the former list. Simple article I know, but it is astounding to me that sometimes people gloss over the simple things in life and try to go play hard ball right away. You ain't ready kids!

or are you?

or are you?

Effective tax rate comparison time

Effective tax rate comparison time

The Incremental Approach to A Life of Luxury

The Incremental Approach to A Life of Luxury