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Mustard Seed Money

Mustard Seed Money

What Would You Do with $20,000 Cash?

May 9, 2018

THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE READ MY DISCLOSURE FOR MORE INFO.

 

A co-worker walked into my office this past week and asked what she should do with the $20,000 in cash that had been sitting in a money market account.  Of course, I had to ask a few more questions so that I could provide a decent financial opinion. By digging, I found out that she was single, had no debt outside of her home mortgage, and wasn’t saving up for anything in particular.  She was maxing out her 401(k), with a 60/40 split between their stocks and bonds.  She also had 3-6 months worth of expenses lined up. With that knowledge, I came up with the six options you’ll read about below.  

 

Blow It on Something Fun

Let’s start with the most fun option.  She could take an exotic dream vacation or splurge on that dream car that she has always wanted.  With $20,000, the possibilities are endless on how she could treat herself.  While my co-worker laughed at this option, too many people that blow their inheritance, bonus, or winnings on material objects.  As a financial blogger, I wouldn’t actually recommend it. However, it’s definitely a popular option today.

 

Leave the Money in the Money Market

While I didn’t advise that she do this, it was another viable option.  Leaving the money in a money market wouldn’t substantially grow her money.  However, if she was worried about losing money, then, a money market would be a safe option.  On top of that, if she plans to use the money within the next year or two for a big expense, such as replacing a vehicle, home maintenance, or college tuition for her children, it may make sense to keep this money free from the wild swings of the stock market.

 

Invest in the Stock Market

Whether you decide to invest solely in bonds, stocks, or a mix in between, choosing passive index funds to supercharge your finances is one of the best things that you can do to build your wealth.  Over time, stocks have returned close to 10%. Meanwhile, bonds have returned close to 6%. When mixed together, they have returned close to 8%, with less volatility. There are great funds to choose from within Vanguard, Fidelity, and even Charles Schwab.  Personally, I am a fan of the S&P 500, but the right fund for you depends on your risk tolerance.

 

Invest with Wealthfront

My coworker indicated that she didn’t really understand the stock market and didn’t know if she could really deal with all the ups and downs of it.  While she liked the idea of the stock market, specifically the historical rate of return, she thought that she would need a financial advisor to help coach her through the market’s behaviors.  I told her that instead of hiring a financial advisor, it might be wise to utilize a robo-advisor such as Wealthfront.  As you may know, Robo-Advisors can tailor a financial plan to your specific needs.  More importantly, they use algorithms to help reduce the risk associated with investing.  While not foolproof, Robo-Advisors are becoming popular for financial planning purposes.

 

Invest in Real Estate

As a former landlord, rental income is a wonderful thing.  It is great having someone else pay off your mortgage while your home hopefully appreciates.  $20,000 could be a downpayment on a rental property.  Then, you can build wealth through real estate.  While not completely hassle-free (midnight calls by your tenants can be miserable), you may receive a big bang for your buck.  Remember though, if you’re going to buy a rental property, always remember to keep the 1% rule in mind when buying.

 

Pay Down Your Mortgage

As someone who is incredibly adverse to debt (it use to keep me up at night), I am a big fan of paying off your mortgage.  The amount of financial freedom that it has provided me is incredible.  The benefits that I’ve experienced (aside from better sleep at night) extend to less stress at work.  As a result, I’ve even received promotions for taking on more interesting projects.  Paying off my mortgage was one of the best things that I’ve ever done.

 

On top of that, because of the doubled standard deduction, the number of people who can write off their mortgage interest on their 2018 tax returns is going to greatly drop.  Thus, now may be a good time to revisit the thought of starting to pay off your mortgage now.

 

So readers, what would you do with $20,000 cash today?  Did I miss anything that you would do? Share your tips below.

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28 Comments

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Comments

  1. Lily | The Frugal Gene says

    May 9, 2018 at 4:21 am

    I would split it with investing and mortgage and a little bit for fun 🙂 if she’s afraid she can buy some gov. backed notes.

    I hate to come at you with the same question Mr MSM but we have $170k+ coming to us soon – what would you do?!
    Lily | The Frugal Gene recently posted…So Late! March to April Budget & Financial Update Featuring…Our Readers! 😍My Profile

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 10:45 am

      After reading through the comments she decided that being debt free and paying off the mortgage was the best thing to do for her 🙂

      In terms of Ms. Frugal Gene…does the mortgage keep you up at night? If so, pay it off. If not, I’d probably dump the market into the market and watch those dividend returns grow 🙂

      Reply
  2. Debbie says

    May 9, 2018 at 5:31 am

    I would take a small amount and do something fun with it. Affordable vacation or purchase an item or two that I would use and enjoy a lot like a new Kindle or running watch, etc. I’d put some towards my mortgage principal and the most in my VTSAX fund.

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 10:46 am

      That sounds incredibly awesome Debbie. I have a first generation Kindle that I love but every once in awhile I look at the new ones and wonder if I should take the plunge. So far I’ve held off but it’s incredibly tempting 🙂

      Reply
  3. Mrfireby2023 says

    May 9, 2018 at 7:27 am

    I’d invest the lump some of $20,000. in a real estate Crowdfunding deal which would pay me a preferred rate of 8% (while it accumulates cap gains in the internal rate of return or “IRR).

    https://firechecklist.net/2018/03/07/real-estate-crowdfunding-part-ii/

    Reply
    • Dr Linus says

      May 9, 2018 at 9:55 pm

      I agree with investing it in real estate crowdfunding platform. I actually think of this as a blend of real estate, investment and paying down your mortgage – House Hacking 2.0

      https://www.dadsmakingcents.com/house-hacking-2-0-another-way-to-get-your-mortgage-paid/

      Reply
      • Mustard Seed Money says

        May 13, 2018 at 11:16 am

        I need to look further into real estate crowdfunding platforms. Thanks for sharing!!!

        Reply
        • Dr. Linus says

          May 14, 2018 at 10:55 pm

          I wrote a post talking about how I invested my money in crowdfunded real-estate. I plan on keeping it updated as the numbers change.

          https://www.dadsmakingcents.com/my-crowdfunded-real-estate-review/

          Reply
          • Mustard Seed Money says

            May 16, 2018 at 8:47 pm

            Thanks I’ll check it out.

    • Mustard Seed Money says

      May 13, 2018 at 10:48 am

      Smart Mr.Fireby2023. I need to explore the real estate crowfunding market a bit more. I have to admit I don’t know as much as I should.

      Reply
  4. Brad - Financial Life Planning says

    May 9, 2018 at 8:45 am

    I’d put it all in my investing account.
    Brad – Financial Life Planning recently posted…How 8 Key Investing Indexes Performed In The Past 10 YearsMy Profile

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 10:55 am

      I’m right there with you Brad!!!

      Reply
  5. Happy 1 says

    May 9, 2018 at 11:50 am

    I would apply the money to my mortgage.I would want to be debt free.

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:03 am

      Hahaha…I’ve done that before. Paying off your mortgage was one of the best things that I ever did 🙂

      Reply
  6. dividendgeek says

    May 9, 2018 at 9:39 pm

    I would invest in dividend ETF. Use the dividends as an additional source of income i.e. pay mortgage etc.
    dividendgeek recently posted…Give up smoking and become a millionaireMy Profile

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:05 am

      That’s incredible smart!!! Let those dividends help pay off the mortgage would be huge 🙂 Sounds like a win/win to me!!!

      Reply
  7. Ms ZiYou says

    May 10, 2018 at 4:23 am

    I’d invest it for the long term – but I am kinda boring!
    Ms ZiYou recently posted…How to decide what bloggers to follow?My Profile

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:16 am

      Hahaha…I’m pretty boring as well 🙂

      Reply
  8. Heather | livelihood redefined says

    May 10, 2018 at 5:25 pm

    At this moment, I would spend it on my upcoming wedding.

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:17 am

      Hahaa…that makes a ton of sense 🙂

      Reply
  9. Simple Money Man says

    May 11, 2018 at 5:31 pm

    Go out to a really nice dinner and invest $19,900. 🙂
    Simple Money Man recently posted…Is Gifting Money Really That Bad?My Profile

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:30 am

      Hahaha…I have cheap taste so that might satisfy a couple of BBQ meals for me 🙂

      Reply
  10. FIREin' London says

    May 12, 2018 at 4:27 am

    Hi MSM,

    For me that amount would be a no brainer – straight off the mortgage. For anyone else a combination of either topping up cash savings, tax efficient savings or mortgage!
    Cheers,
    FiL

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:31 am

      Thanks for sharing FiL!!! Paying off my mortgage is the one thing I don’t regret doing 🙂

      Reply
  11. Dividend Portfolio says

    May 12, 2018 at 1:14 pm

    Wow, that amount of money would nearly double the size of my dividend portfolio, which is where all of it would go.
    Dividend Portfolio recently posted…Progress Report – April 2018My Profile

    Reply
    • Mustard Seed Money says

      May 13, 2018 at 11:32 am

      Thanks for sharing Dividend Portfolio!!! Sounds like you would invest it wisely 🙂

      Reply
  12. Jason Butler says

    May 22, 2018 at 4:40 pm

    I’d put half of that amount on my debt. It would be good to see the numbers under 50K. Then, I’d invest the other half
    Jason Butler recently posted…24 Events to Travel to This SummerMy Profile

    Reply
    • Mustard Seed Money says

      May 22, 2018 at 9:40 pm

      Thanks for sharing Jason!!! Knocking out debt is always incredibly smart 🙂

      Reply

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