How to Invest $10k: Specific suggestions from a personal finance expert (2024)

Debt is like rust: it eats away at your ability to build wealth. By eliminating high-interest debts—like those credit card debts with 20% interest rates annually on average—you not only free up your budget from interest payments but also set yourself up for long-term financial success.

Paying off high-interest debt is an investment in itself. The returns are guaranteed and will probably surpass the potential gains from other investments. For example, eliminating a 20% interest rate on credit card debt is equivalent to earning a 20% return on an investment—something you’d have to be extremely lucky to get normally.

Start by listing all your debts, prioritizing those with the highest interest rates. This method, known as the avalanche method, focuses on paying off high-interest debts first, which can save you the most money in the long run. Alternatively, you can use the snowball method, where you pay off the smallest debts first to build momentum and stay motivated.

Once your debts are under control, you can start investing the rest of your $10,000 into other more exciting things.

Ok, this probably isn’t what you had in mind for “more exciting things” but it has to be said… after you finish paying off your debts, you really should build up some savings before putting your money into something like stocks.

Anemergency savings fundacts as a financial safety net, providing peace of mind during uncertain times. Setting aside three to six months’ worth of living expenses puts you in a great spot. This buffer can cover unexpected events such as medical emergencies, car repairs, or sudden job loss, ensuring that you can navigate these challenges without derailing your long-term financial goals.

When deciding where to park your emergency fund, consider a high-yieldsavings account. These accounts offer better interest rates than traditional savings accounts, allowing your money to grow while remaining easily accessible. Additionally, look for accounts with no monthly fees and low minimum balance requirements to maximize the benefits.

It’s also important to separate your emergency fund from your everyday spending account. By keeping these funds distinct, you’re less likely to dip into them for non-emergencies. Automating regular transfers to your emergency fund can help you stay disciplined and steadily build your savings over time.

Once your rainy day fund is established, you can confidently explore other investment avenues with the remaining portion of your $10,000, knowing you have a safety net in place.

Starting your own business is a great way to invest in yourself, and $10k (or a portion of it) is more than enough to kick things off. If you’re smart about how you approach entrepreneurship, you can significantly reduce your risk and improve your chances of success.

Picking abusiness ideaoff the top of your head can be overwhelming, so I recommend starting with exploring your passions and skills. A business you enjoy is one you’re more likely to commit to in the long term.

If you’re in need of inspiration, check outthis guide of 77 business ideasyou can start with $10k. Some of them include:

• eCommerce
• Life Coaching
• Starting your own Blog
• Resume writing
• Content creation
• Baking services
• Being a real estate agent
• Consulting
• Copywriting
• Photography Services
• and many more

There’s obviously a lot more that goes into building a business beyond just picking an idea. If you want to learn more, here’s a video where I break it all down:

If you’ve read this far, you’d LOVE my New York Times Bestselling book

Ok, we’re finally at an option that feels more like “investing-investing”. But you’re not going to start randomly picking individual stocks.

Index fundsare a type of mutual fund or exchange-traded fund (ETF) designed to replicate the performance of a specific market index, such as the S&P 500. They offer a simple, low-cost way to diversify your investments across a wide range of companies.

The beauty of index funds lies in their simplicity and efficiency. By investing in an index fund, you gain exposure to hundreds or even thousands of stocks with a single purchase. This diversification helps spread risk, reducing the impact of any single stock’s poor performance on your overall portfolio. Historically, broad market indexes have delivered solid long-term returns, making them an attractive option for building wealth over time.

Another major advantage of index funds is their low cost. Since these funds passively track an index rather than trying to outperform it, they have lower management fees compared to actively managed funds. These savings on fees can significantly boost your returns over the long run. Additionally, index funds tend to have lower turnover rates, which means fewer capital gains taxes for investors.

Here’s a straightforward guide to get you started:

• Choose your index: Decide which market index you want to track. The S&P 500, representing 500 of the largest U.S. companies, is a popular choice.
• Find the right fund: Look for funds that track your chosen index. Platforms like TD Ameritrade, Vanguard, and Fidelity offer a range of options.
• Open a brokerage account: If you don’t already have one, you’ll need a brokerage account to invest. Again, consider reputable options like TD Ameritrade, Vanguard, or Fidelity.
• Buy shares: Once your account is set up, purchase shares of your chosen index fund. You may even be able to buy fractional shares if the share price is high.