Today, we are going to answer a simple question. “What are the best things that you can do with $10,000 to benefit your life and invest like a champion?”
Whether you personally agree with it or not, President Biden has moved forward with canceling up to $10,000 of student loans for debtors that qualify.
The critics of this decision will point to data that shows that each tax-paying American family will pay between $2,000 and $4,000 each to support and fund this loan forgiveness, known as the loan reorganization program. But the supporters of this program point to the fact that it does shift some debt away from those earlier in their workforce years at a time when they’re earning potential is near its lowest. The logic is that if you can free up $10,000 earlier, these individuals can have a long and more successful career and thus pay more in overall taxes.
We also get the question all the time, “I only have $5,000, $10,000, or $20,000 to invest.” What’s the best thing to do with that money?
Hi Everyone, Nic De Angelo here with Saint investment group. We currently have over 150 million in real estate assets, under management and as a reminder, I’m not an attorney, securities attorney, CPA, CFP, etc. I definitely recommend that you talk to professionals that understand your financial situation. Everything in this blog is my understanding from my own research and my own personal experience.
Let’s jump into the best and most strategic ways to spend $10,000. So let’s start with the two most obvious options.
- The first and likely most obvious option is if you are carrying around debt that is dragging down your credit score and killing your income with the principal and interest payments that are due, then you should consider using the $10,000 to pay down your existing debt.
This is one of the most low-risk options because it will lead to an immediate improvement in your overall financial situation. Also, there are not a lot of market conditions to consider here. Like many of the options, we’ll talk about it later.
So overall, the risk is essentially nothing and the upside is very high. The reason for this is that paying your debt down right now allows you to reduce the overall interest that builds up over time or over a lifetime from that existing debt. If you’re not careful, debt can pile up and essentially have a snowball effect where the interest you’re not paying gets added to more principles and then that principle generates more interest, etc.
That snowball grows bigger and bigger. That’s the number one thing we want to avoid in regard to debt. On the flip side of that, paying down debt ASAP reduces the monthly interest expense. You’re paying significantly over the lifetime of that debt or your life in general. So just like allowing the interest to build up and add to the principle and that gets worse and worse
Paying debt down sooner reduces that principle and therefore reduces that interest and your debt if paid down today can exponentially shrink over time.
Now, as a quick sidebar, everything I’m talking about here is about bad debt, mostly consumer debt. These are things like cars like TVs, credit cards, etc. Anything that does not bring you a financial return that you still carry debt on.
With that, there’s a huge difference between bad debt and good debt. Let’s take a minute to define both for the sake of this example.
Let’s start with good debt. The simplest definition of good debt is that it increases your net income and your net worth overall by purchasing assets that appreciate over time and cash flow.
For example, if you buy an investment property, like let’s say a duplex, and then you go ahead and you rent it out, you are more than likely taking on a loan to complete that purchase. Very few people have that kind of cash, just sitting on hand, ready for that purchase in full. So you’re likely going to take a loan out to make that happen. Now, if that duplex’s income exceeds the expenses, including the debt payment, and the mortgage payments, then that could be considered good debt.
Now, if that property also appreciates in the future, and you’re also taking some tax advantages like writing off the mortgage interest expense, then that actually might be a great investment that you made the debt you took on.
The mortgage allowed you to receive monthly income, and get some tax benefits. and in this example, it is even appreciated over time. This is a classic example of good debt. Simply put, good debt increases your net income and your net worth over time.
All right, now let’s talk about bad debt. Simply put, bad debt brings down your net worth and your net income over time. This is from making purchases in debt that don’t improve your financial situation.
Overall, things like overly costly living situations and basically almost anything that is in the normal consumer debt spectrum is going to be considered bad debt.
Another way to put it is nearly everything that you want instead of need is probably on the bad debt spectrum. Here are a few classic examples.
We all know we have basic human needs. We all need to eat obviously, but if you’re tight on cash and you spent say a hundred dollars on a fine sushi restaurant, you got some dinner, you got some drinks and you put all that is on your credit card when you could have had a home-cooked, fully organic meal for like eight bucks, then you have just made a bad debt decision and that doesn’t mean you can’t treat yourself once in a while. But what it does mean is that you need to understand and identify when you’re making good overall financial decisions or things that are actually dragging you down.
Overall, similarly, if you are tight on money and you buy, let’s say an AMG Mercedes for a thousand dollars a month payment, instead of a used car, that’s maybe a little bit more efficient at about 250 bucks a month. Then as far as your debt’s concerned, that is a bad debt decision.
Now, while these are only two examples, the reality is that if you keep making these habits of bad debt decisions over a long period of time, or even a short period of time, if you keep making these bad debts decisions, one by one over and over, it will build up your credit card balance and your monthly expenses overall and if you don’t pay that credit card down on a monthly basis, it will snowball exponentially. It will go off the charts because credit card debt is so insanely expensive.
There are no rates in the world as high as credit card debt and this can absolutely ruin your life if you’re not careful. So minimize your bad debt decisions and if you wake up with $10,000 more dollars to your name, consider paying down some of your debt, if you do have some outstanding.
The next obvious example that we can’t get through this is without mentioning and it’s one of those things that are very obvious and it’s talked about, but many people don’t do it. and that is saving a few bucks to put away in case of emergency.
Maybe that’s one month’s expenses in case of emergencies. Maybe it’s some other calculation that you come up with that you determine is smart for your situation. But if you have $10,000 more right now so that you’re not living tightly month to month, it’s just a good, smart idea that will take a little bit of stress off your life and your financial planning. So those are the most obvious ones that kind of cover the financial basics.
Now let’s get into some more interesting ways to use and invest $10,000 today.
- Start a business
According to the US small business administration, most micro-businesses cost around $3,000 to start while most home-based franchise businesses cost between two and $5,000 to start. The full game plan of how to start and build a business is beyond the scope of this article.. Just know that $10,000 is way more than you need to start a business right now. As a matter of fact, you wanna start with as little as possible until you have proven your business can be profitable and that your business concept is viable, to begin with.
Remember when we just talked about good debt versus bad debt? Overspending on a business that you haven’t proven to be profitable and viable is a very quick way to ramp up debt. My advice is to find a business model that is cheap and efficient and scales to the moon from there don’t believe me.
Here’s a perfect example from my life. My first big entrepreneurial success was an ATM business that I started from ground zero and you know what? I started this business with way less than $10,000. I built it up slowly over time and eventually, it was making me over $10,000 per month and this was in the middle of the world after the great recession, which if anything should have been much harder, no banks would give me a loan for anything. So I self-funded the business as I grew. It is doable.
You can do this and guess what? Today, if I had to go back, I wouldn’t even do ATMs. There are infinite possibilities for online businesses that you can do for much less than $10,000 and scale to much greater than what I did.
The next example of how you can invest $10,000 and this one is a real estate example for you and it’s one that I really like about today’s real estate market.
- $10,000 is not going to take you very far when it comes to buying property, but you could renovate what you already have and what you already have access to.
According to Rocket Mortgage, a complete garage remodel will cost around seven to $15,000. Now, this assumes that you have a house that you can access or that you outright own already. If you have a house that you own or a house that you rent or can rent on a long-term basis, meaning a multi-year basis, you can renovate the garage and likely get 100% return on investment, a hundred percent ROI by the end of year one, do you realize what I’m saying?
Every dollar from thereafter is pure profit after that. So how do you do that?
Let’s say that you remodel your garage for seven to $15,000. Wait for it, and rent out the garage. That’s right. Good old-fashioned house hacking is a creative way to bring in more rental income from the property that you already live in. If you renovate your garage into a livable space for let’s say $7,000, you could likely rent it for 500, maybe even up to $1,000 per month and you know what, maybe even higher in some markets and as I mentioned with those numbers, you get a 100% ROI in less than a year with every dollar beyond that being essentially pure profit and this is one of the best houses hacking opportunities that you can do for $10,000 or less.
Now a couple of notes. This will work better in certain markets than in others.
I could definitely see this is working better and let’s say a college city where there’s a lot of people that are looking for cheaper housing options on the market, like let’s say maybe a bunch of eagers and broke college students, but also just make sure to check with your city and their regulations as it relates to this, because I don’t want you to get in trouble, but it is an amazing opportunity. Definitely check it out. If you’re looking for real estate income on your 10,000,
- Another top-tier option is to prepare for retirement, or open an IRA.
If you don’t have a 401k plan through your employer, then I highly recommend taking a look at opening an IRA for yourself. You have a few options to consider as it relates to IRAs but in this position, if you’re talking $10,000, typically a Roth IRA might be a good fit for you, and it might allow you to take full advantage of compound interest and compound returns while minimizing your tax exposure over a longer period of time.
In 2023, you can contribute up to $6,000 per year to your Roth IRA or 7,000 per year. If you’re 50yrs or older because Roth IRAs have such huge tax advantages and benefits, you could make a $6,000 contribution today to your Roth IRA, and then use the remaining money you have saved to invest in one of the other options on the list. Diversification is a strategy too. Don’t forget it.
- Invest in index ETFs.
If you’re new to investing, ETFs are considerably less risky than many other types of investing, especially within the stock market slash equities world. Also, ETFs will typically be less risky than things like buying stocks individually, one by one, or buying bonds that you don’t fully understand or getting into crypto right now.
Instead, index ETFs are essentially baskets of individual stocks, which are professionally managed and are included in one fund that you can buy a share of through a company like Vanguard. If you buy a share of a whole index ETF, like the S&P 500 index, for example, then you’re buying a share of a company that owns a tiny sliver of the entire S&P 500, which if you don’t know, is a group of 500 of the best companies in the US that are hand-selected.
Yes, that’s right. For every share that you buy, you are buying a sliver of the 500 best companies in the US, which is the number one economy in the world. This absolutely blows my mind. Also, do you want me to sweeten the deal ETFs have a really low fee structure, typically how much they charge you for managing your money for that share that you bought and ETFs are also typically much more consistent than you buying individual stocks and hoping that one company instead of the 500, that one company does well and not poorly for me personally, ETFs represent the absolute massive majority of my equities holdings my stock portfolio.
I personally buy very consistently, which are the S&P 500 Vanguard ETF, Russell 2000 ETF, Dow Jones, industrial ETF, and also the NASDAQ ETF.
Between those four ETFs, I have massive diversification for the American stock market, and I can trust that my money will likely grow consistently over a long period of time and that the fees that I incur are going to be low.
What I just told you represents the vast majority of my strategy because the rest of my money gets piled into real estate, which is my all-time favorite asset class in the investment strategy of all time. But when I do equities, when I do stocks, it’s those four ETFs.
According to Forbes, if you were to earn 10% per year, every year for 30 years, that $10,000 that you started with and invested today would be worth $174,000 30 years from now, again, that’s with literally zero effort, one purchase today, and the market does the rest.
While I don’t agree with Forbes that the stock market actually delivers a 10% return. My research shows it’s around the 8% mark. When you add in things like fees and taxes, I do think it’s an amazing example of how much $10,000 can grow over a long period of time with consistent returns and very little effort. Basically, you can set it and forget it and not have to worry about it.
So were those helpful so far? Because we have one last option that is the super option of what to do with $10,000 today. The super bonus amazing option is to take the strategies we went through and combine them into one strategy with one addition here, and that is to seek out and find the best education that you can with that money and most importantly, I’m not talking about university education here where $10,000 would just be a tiny fraction of what the total bill will be for that university education. I mean, if you had $10,000 forgiven from your student debt, the last thing you probably wanna do is go back to a university and build more debt or spend more money in the system rather than a college university.
Here’s what I recommend. Sit down at your computer and spend one hour on Google finding the best course that you can in a niche business topic that you know will give you a big return on investment. This might be a course on selling things on Amazon or marketing using Google or Facebook ads, even something crazy niches, like how to flip Pokemon cards, whatever it is, find the best course on that subject from the best teacher and most knowledgeable individual. The next step is to buy that course and implement everything that is in that course to a T to become a master at what that person is teaching you.
Some of those courses might cost several thousand dollars, but the good news is you’re gonna have thousands of dollars left to implement that course at a high level and become a master of the skills that are in front of you. If the course is on how to build a specific business, and use the extra money, you have to build that business and implement it. If that course is on a specific skill, like high-end marketing or coding or something, that’s very skill-based then pour yourself into it and become an absolute professional. But the number one thing about getting these courses is it must make you more money. The return on investment must be clearly high, frankly. I believe all education must have a return on investment. That’s absolutely clear and very high. All education should have a return on investment. If you’re being educated and you’re paying big bucks for that, and it’s not adding to or improving your life. Then to me, that is not a good use of funds for any education.
There are infinite books about hobbies and things that you might have an interest in that aren’t going to make you money, but if you’re gonna spend the money on it, make sure that has a return on investment and let’s be clear out of love. If you’re at a place where the government is giving $10,000 of your debt, or you only have $10,000 saved, you need money. You need this right now. So don’t spend your money on something. that’s not going to give you a return on need in this position.
So all in all for this piece, the goal is to find something niche and amazing that will build your skills. Then you build those skills and you get paid for them all.
I hope this article was extremely helpful to you, whether you had your debt reduced by $10,000 by the American government, or whether you have a $10,000 safe today, make the most of it, and use this opportunity to grow and improve your life, and your finances.
We have a ton of this information that comes out every single week, multiple full-length videos, then many, many short-form videos that come out that have a condensed version of one idea that might be helpful to you as well. Every single week, we cover the topics of finance, investing, and living an amazing life.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.