Today is your lucky day because you just won $5,000 in a raffle at work. Wow! What a fantastic feeling to get this much money free of charge. Now comes the tricky question—what do you do with the cash?
I wrote an article a couple of months ago titled “How Would You Invest $300,000?” which assumed everyone would invest if they received a large sum of money. However, $5,000 is a much smaller pot of cash, and people have many ways to use this money.
The way I see it, there are four main ways to spend this type of money: play, pay debt, save, or invest. Each has its merits, but of course, I will always lean towards investing. Let’s review each of the ways and see what we learn.
52 Weeks of the Dividend Challenge
Play. Buying toys is the worst way to spend money. Toxic consumerism has taken hold of Americans, and spending money on things we don’t need is a national pastime. I am not saying that you can’t enjoy a small amount of the money—go ahead and take your family to Applebee’s. Even if you are debt-free, there are better places to allocate these new funds.
Pay Debt. I would assume most people would pay down debt with their newfound cash. Yes, it is the right thing to do in most cases. But, I would like to challenge this notion a little.
In “Pay Down Debt or Start Investing,” I stated that starting to invest is just as powerful as paying down debt. Yes, conventional wisdom is to pay off high-interest debt as soon as possible—before investing. However, getting in the habit of investing is more powerful than paying off debt (at least to me).
Being in debt is like living in a glass prison. You can watch everyone playing outside, but you can’t participate. On the opposite end of the spectrum, living on your investments is like floating on a cloud above Earth. Everyone is living in debt, and you can watch life like a movie on Netflix. Understanding both feelings is paramount to never getting yourself back into debt again.
Save. Many people will save $5,000 for a rainy day. Saving is not a bad way to allocate these resources, just don’t overdo your financial security. There is a big difference between financial security and financial freedom. Knowing this difference is a great way to ensure you always put your money to work via assets.
Real Estate is a Mindset (Beginner)
If you fear the stock market, I can understand. I wrote an article called “The Woman’s Guide to Investing” that talks explicitly about slowly overcoming the mental hurdle of investing. It seems like you could be losing control of your money, but you are actually gaining powerful knowledge of making your money grow.
Invest. Of course, investing is my favorite way to leverage the $5,000. But there are so many ways to invest; how would you possibly get started?
First and foremost, you have to have a life plan to ensure you allocate the money towards the right goals. What is your rich life? How do you plan to arrive at this destination?
Why Gold & Silver
Once you have at least a vision of the future, you can start planning our investment strategy. Yes, even with $5,000, you’ll need to take the time to review your strategy. There is nothing different from investing $5,000 or $500,000, just a couple more zeroes.
There are many types of assets to invest in—financial mindset (invest in yourself), business, cryptocurrencies, stock market, and real estate are the main ones. You can also speculate with things such as gold, Pokemon cards, sports cards, and NFTs.
I could write whole articles on each of these asset classes. Oops, that’s what I do every day. An excellent place to start your research would be my free book “Don’t Gamble with Retirement 3 + 4.” It covers all the different asset classes and can give you some insight into building up each asset class before retirement.
Now, let’s go on a simple spending spree and invest our $5,000 across various asset classes.
- Dividend Growth Investing. I would build a small $1,000 DGI portfolio consisting of Microsoft, McDonald’s, Prudential, and Altria—split evenly. I could slowly add to this portfolio as I earned more money.
- Income Investing. I would also build a simple income portfolio consisting of the closed-end fund Pimco Dynamic Income Fund (PCI) and AGNC, a mortgage REIT.
- Real Estate. There isn’t much real estate you can buy with $1,000; however, you can invest in a REIT named Fundrise. Fundrise doesn’t trade on the stock market, so it reacts differently to market forces.
- Cryptocurrencies. I hate to be super simple, but I would invest $1,000 into my favorite stable coin, USDC. It pays a whopping 9% interest and has no volatility.
- Business. Finally, I would use my final $1,000 to invest in my own business. I would write book reviews for passive income by starting my blog. I would review science fiction books. My $1,000 would pay for two years of web hosting and other assorted expenses. I could even invest in myself by taking an online course.
Art Edition: The Biggest Book on Passive Income Ever!
As you can see, I was very busy with my $5,000. Every single penny went towards something that would earn a return on my investment. My $5,000 would grow into a small fortune over time, especially if I continued to invest in my portfolio and business.
Conclusion. It is essential always to have a plan for when random money arrives. It may not happen often, but when it does, be on top of your game. You don’t want to go with “current trends.”
This statement means that you get $5,000 and ask someone else how (or what) to invest. You’ll end up with a poor answer or a good answer that is out of context. Avoid this scenario by learning about the different asset classes. You are your own asset class, so invest in yourself.
Thanks for reading, and if you would like to read more from me, please follow me on Twitter and my Facebook Page. Enjoy and Happy Investing.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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