While saving $10,000 is a wonderful accomplishment, especially considering today's economic climate, it's crucial that you put your hard-earned cash to good use. If you're unsure of how to proceed going forward, here are four tips to safely and wisely allocate your cash.
Boost 401(k) Savings
Upping your 401(k) savings is a great idea, especially if your employer matches contributions. Say your employer matches your contributions up to 5% of your pay, but you're currently only contributing 3%. In that case, you're essentially forfeiting 2% of your monthly salary. Consider increasing your contributions at least up to the company match. The 2016 contribution limit on 401k plans is $18,000 (the catchup contribution those 50 and over can add is $6,000, for a total of $24,000).
Open an Individual Retirement Account
There are two options for IRAs: traditional and Roth. The main difference is the tax treatment of contributions and withdrawals. With a traditional IRA, you can write off contributions on your taxes each year, but your withdrawals are taxed during retirement. With a Roth IRA you contribute after-tax dollars, but pay no taxes on withdrawals. Consult the IRS website for a full list of restrictions, penalties and other terms.
Start a College Fund for Your Children
You may also want to take your nest egg and invest it in your child's college fund. Your best bet is a 529 plan. The cost of college is staggering, and anything you can do to help pay for these expenses can help your children lessen their reliance on student loans. Depending on where you live, you may be able to deduct your contributions on your state income tax return. 5 Secrets You Didn't Know About a 529 Plan will tell you more.
Increase Your Mortgage Payments
Say you're 10 years into a $200,000, 30-year fixed mortgage at 6%. Bumping up your payment by just $100 could save nearly $19,000 over the life of the loan, and you'll pay off your mortgage almost three years earlier.
The Bottom Line
Now that you've worked so hard for your money, it's time to get your money working for you. Just be sure that you research all fees and expenses that may come with any investment you choose. Some fees can really take a chunk out of your investment over the long-term, and you don't want your investment efforts to have an adverse effect on your savings.