Reaching $50,000 in savings is a huge milestone for the average person. It’s the kind of lump sum that makes you feel invincible. While you’re likely tempted to do something with that amount of money, experts caution against making certain money moves.
“As a certified financial planner, I have seen how liberating this moment can be,” said Adam Garcia, certified financial planner and founder of The Stock Dork.
However, he said it is also a moment that is very crucial in the sense that some decisions, even the most rational ones, can derail your long-term objectives. Below, he shared three of them and the rationale behind why you should be evading them.
Upgrading Your Lifestyle Too Soon
“One of the errors I typically witness is upgrading one’s lifestyle a tad too soon,” Garcia said. “For example taking out finance for a new vehicle or making an expensive down payment on a house.”
While these moves are juicy and seem to be the next step, he said they wipe out your liquidity and place other monthly responsibilities that can prevent one from dealing with emergencies or from investing in opportunities.
“First things first, mobility and financial flexibility form the order of things,” he added.
David Milo, financial advisor and owner of Independent Lending, agreed. “It is fine to indulge oneself, but emptying one’s savings just for a few luxury items is putting oneself in trouble,” he said.
Rather, Milo advised setting aside a sliver of your savings for this purpose (about 5 to 10%) and continuing to work hard on your financial plan and goals with the remaining portion.
Excessive Risk-Taking
Another error in judgment that people often commit, Garcia explained, is risk-taking in excess. “Which is sometimes motivated by investing in high-yield assets such as cryptocurrencies or that are in fashion stocks,” he said. “Many believe, ‘Now that I have $50,000, I can afford to take a chance.’”
Without diversification, however, he said those bets can wipe out profits and all progress you worked for is lost. “Rather work on a balanced portfolio designed for the goals and personal risk appetite,” Garcia added.
Milo agreed that focusing on risky assets is the wrong move. “When a person achieves valued savings of $50,000, trust increases to the extent that money is dumped into assets such as cryptocurrency or speculative stocks.
“Just because the individual has a lot of money, there is no reason to empty the vaults of assets in such short-term goals or plans,” he said. “Instead, stick to target amounts, aspirations and asset operations.”
Checking Out of Finances
Garcia said some individuals have the mindset of “I’ve made it” and then simply check out of their finances.
“The $50,000 is a good start but by no means is the end goal,” he explained. “A regular checkup on your financial strategy allows for modifications to be made by changes in life circumstances as well as goals.”
He said this can be further administered with the help of a financial advisor resulting in smoother and more tactical means of accomplishing this.
“The beginning of the five-digit number comes into view, which is a good place to start celebrating but at the same time, it is expected to put a good amount of effort into making thoughtful decisions,” Garcia added. He explained that this series of steps can aid in transforming an impressive milestone into even better prospects for your future.
