I’ve been working hard freelancing this year and have saved up some extra cash. Obviously this isn’t a bad problem to have, but want to make sure that I’m using it as wisely as possible.
So I was hoping you could give me your opinion how YOU would recommend deploying this capital.
A few facts to be aware of:
- Only about 40% of this money is usable. Right now my expenses are between $3000-$5000/ mo, so a 6 month emergency fund would take me to $30,000 which I feel is especially important to keep on hand since I work from home & don’t have the security of a paycheck. Also, about $30,000 or so of this cash is going to appropriated by our government for socialist wealth redistribution activities and inefficient wasteful spending. So technically I can’t touch that money.
- I also have about $28,536 left in student loan debt at 2.875% which is essentially my “risk-free” rate of return vs the 10 year at 1.46%. If I were to pay off the minimum of $225.00 it will take me an additional 12 years and 6 months to pay it all off, at a cost of $5,423 in interest payments.
- Right now the cash is sitting in an account earning 1%.
I have a few options I am considering:
1. Do nothing. Stay patient and wait for better market opportunities
This is what I’m doing now. A market correction could come at any time. This month, or several years from now yet… no one really knows. But perhaps the money I’m losing to inflation is the cost of doing business to take advantage of opportunities if and when they arise.
2. Pay off the student debt ASAP, becoming debt free
This would take out $28,535 that I could be putting in the market to work harder. Yes, there’s something nice about saying you’re debt free, but at 2.875% this is very cheap money, so I’ll be paying it off with cheaper dollars down the road, so mathematically, I’m not really sure it’s the most efficient path. But it could be the least risky path.
3. Put it in the market now
Historically, the market has provided the greatest return – but as we all know, past results don’t mean anything for future results. Further, I don’t see a lot of values right now, but maybe it’s just best to pay full value for high quality companies since my time horizon is very long and odds are whatever happens the market will be in a better place 10-20 years from now than not.
4. Buy a rental property
I could diversify my assets. Although I don’t know much about real estate, I could learn. Plus I could leverage which would help me to build net worth faster, although at some higher amount of risk. Also it should be said that I’m quite lazy and not handy with fixing things, so for me I don’t see it being a great fit, although I love the idea in theory of owning property.
5. Buy a nice Ferrari with velvet fur inside
I could just blow it all on a really sweet car and look cool when I pull up for groceries in the shopping mall. Plus fur is comfortable.
6. Something else?
As the old adage goes, you don’t know what you don’t know. Maybe there’s another option here that I haven’t considered.
Right now I’m leaning towards keeping cash opportunistically, and dripping in a certain small percentage each month into the market, while keeping most of my net worth in cash, but all of the above ideas do have some appeal and argument.
Your thoughts? Feel free to take the poll or add in the comments below. Thanks!