Saving money is an enduring task, with no end ever in sight. Although challenging, it’s a rewarding task to save money and one that you should be proud of participating in. Anyways, today’s article will answer the question ‘is $4000 a lot of money?’
To answer the question as quickly as possible, it depends. $4K is a lot of money, but it also isn’t in many circumstances. Yes, it could be a lot of money for a 14-year-old with zero expenses, but it isn’t a lot for a 45-year-old with a mortgage, car, and other costs.
Things like location, age, and income are also leading factors determining if it’s a lot of money.
Without trying to deter you, I’ll also explain what $4000 can buy and give you four recommendations on maximizing the amount to its full potential.
Without further ado, let’s unpack the question of ‘is $4000 a lot of money?’
Is $4000 Much Money?
$4000 is a bit of money, but it’s not a lot. It’s a confusing answer, to say the least, but hear me out.
The average rent of a one-bedroom apartment in America was $1098 a month in 2020. The cost can dramatically rise once you add food, utilities, transportation, clothing, healthcare, and entertainment.
Four thousand dollars will generally cover two months of living expenses for a single person (living on their own). Sometimes more if you’re frugal with your spending habits.
As I’ve also stated, factors like location, age, and income also determine if $4K is a lot of money to you.
Let’s start with location. The average rent in Hawaii is $1617 a month, compared to only $725 a month in West Virginia. Four thousand dollars could pay for 5.5 months of rent in West Virginia, compared to a measly 2.4 months in Hawaii.
See how much further 4000 dollars get stretched out simply by living in a different location.
The next factor is age. If you’re 20 years old with $4000 saved, good on you! But, if you’re 65 with only $4000 saved, you’ve fallen behind.
The final factor that determines if $4000 is a lot of money is income. If your salary is $20K a year, and you manage to save $4000 of it, great job. But if you’re making $250K a year and only saving $4000, it’s not enough.
I’ll explain this concept further down below.
Now, if you’re wondering what a good amount of money is, I tend to believe that those with $250K – $500K are in a good financial position.
Again, it depends, but if you’re able to pay off your living expenses with investment returns, you’re financially free.
Is $4000 in savings good?
Regardless of what I’ve just said, $4000 in savings is still a respectable amount.
If you have $4000 in savings, you’re doing better than 75% of American’s. Seriously, if you’ve reached $4K in savings, give yourself a pat on the back for your determination and hard work.
Reaching 4000 dollars has likely taught you to save and spend your money wisely and will equip you with the skills needed to save to $5K, and so on.
Now, I’ll explain the concept of how much you should save compared to your income.
Many people recommend saving 15% to 20% of your income, and you should try to live by the 50/30/20 rule.
The 50/30/20 rule goes by this:
- 50% of your budget to essentials (rent, food, utilities)
- 30% to discretionary spending (entertainment, socializing)
- The final 20% to your savings account
For example, if you’re earning $20K a year and manage to save $3K – $4K, you’re doing a good job.
But, if you’re earning $250K a year and only manage to save $4K, you’re only saving 1.6% of your salary, which isn’t enough.
So, your income is a massive factor in how much you’re able to save a year.
Now, to become financially independent, you should have roughly 25x your annual expenses in your investment portfolio.
This means that the average single person in America can become financially independent with an investment portfolio of $793,000.
What Can You Do With $4000?
Now, if you’re wondering, ‘what can I do with 4000 dollars?’ Here are a few suggestions.
While I don’t recommend spending your $4000, it is your money after all, and you can do whatever you want with it.
I do, however, have four recommendations below on how to maximize your $4K.
What you can spend with $4000:
- A used car
- Four months of rent
- A decked out MacBook Pro 16″
- Furnishing your new house/apartment
- A tropical getaway
What Should You Do With $4000?
Now that we’ve established that $4000 is a bit of money, we’ll now discuss what you should do with it.
If you have this amount saved after taxes and living expenses, these are four ideas I recommend trying out.
Start a small business
The first thing I’d recommend doing with $4K is starting a small business. Four thousand dollars is a tremendous amount to begin with, and you can get a lot done with it (if you use your money responsibly).
I think starting a business is such an exciting yet daunting process, and you’ll never know what will come from it unless you take action.
While it can cost a lot to run a physical business, here are five ideas that don’t cost a lot of money.
Five ‘cheap’ business ideas:
- Start a YouTube channel: Creating a YouTube channel is entirely free, and you can film and upload videos directly from your smartphone. A budget lighting softbox and microphone won’t cost you more than $200, so it’s a cheap setup, to begin with.
- Start a blog: A domain name and web hosting will cost you about $50 to $150 a year, and blogging can be a highly profitable pathway to head down. Much like YouTube, it’s a marathon, not a sprint. If you can endure for months/years and are willing to learn, I recommend starting a blog.
- Create a Print on Demand store: A great way to sell physical products without having many overheads. Print on demand is excellent because the products are manufactured and shipped by a supplier (like Printful or Printify) after purchase, so you don’t have to fulfill orders yourself.
- Sell on Etsy: If you like creating handmade products (jewelry, artwork, stickers, journals), then selling on Etsy could be a great path to head down. Here are ten popular products to sell on Etsy.
- Dropshipping: Much like print on demand, dropshipping doesn’t involve keeping goods in stock. Instead, you act as a middleman, marketing (often cheap Chinese manufactured) products to customers, and getting them shipped directly from the manufacturers to the customers for a markup.
This year, I started my online business with blogging, and it’s been a massive journey.
Although not super profitable yet, it’s been great. I’ve also learned more about writing, SEO, and marketing than I would have ever thought.
So, if you have a small business idea, go for it!
My following recommendation is to keep it in savings. You can keep adding to your savings account and try to hit your next milestone of $5000 or more.
As I’ve also stated, having 4000 dollars in savings is more than what millions of Americans currently have, so be proud of yourself for reaching this figure.
While it is a boring method, it’s safe and will ensure that you don’t lose your money as compared to some of these other strategies.
Your best bet is to store the $4K in a high-yield savings account, which pays 10 to 25 times more interest yearly than a typical savings account.
You could also split the money in half and keep one half in your savings account and the other half to fund an emergency fund.
A $2000 emergency fund is an excellent safety net and can be used if things go wrong or you need money fast.
Now, to help you save more money for the future, I’ve created several free money-saving challenges that you can print out for yourself.
Another strategy I’d recommend pursuing with $4K is to start investing. Investing is an excellent way to make passive income and let your money compound over time.
While I’m no expert with investing, I’ve made $815 from a $5400 investment within the past 12 months.
In contrast, if I had let the $5400 sit in my 0.35% p.a. savings account, I would’ve only earned $18.90 in interest. Investing has made me more than a 4000% return compared to my regular savings account.
Investing does have its risks, and I advise you to research the stocks you’re buying into thoroughly; otherwise, you could lose a lot of money.
Also, investing is for the long term, and you have to be willing to keep your money invested for years or decades.
Anyways, this $4K investment could set you up for a financially free future.
Don’t believe me?
Let’s say you invested $4K into the S&P 500 (average returns of 10.7%) and then contributed another $250 a month for 35 years. That number could turn into a massive $1.15 million.
While it’s practically mind-blowing, it’s simply the power of compound interest over time.
Disclaimer: All investment strategies involve risk and loss, and nothing contained in this website should be construed as investment advice.
Pay off debt
The last thing I’d recommend is to pay off your outstanding debts. While it’s a boring strategy, it’s one that you’ll be thankful for after you’ve finished it.
Instead of paying the ridiculously high-interest rates on credit cards (like 22%), why not try to pay them off as quickly as possible.
I personally do not think that there’s any point in having money in a savings account if you’re spending crazy high-interest rates on your credit cards. It’s a waste of time and money altogether.
The method I recommend to pay off debts is with the debt avalanche method.
Let’s say you have $20,000 in debt. List all of your debts by their balances, interest rates, and the minimum monthly payment.
Allocate the minimum monthly payment to the debts every month. Then, furiously pay off the credit card with the highest interest rate.
Once that credit card is paid off, move onto the second-highest interest rate, and so on until all of your debt is paid off.
Wrapping Up – Is $4000 a Lot of Money
So that concludes the question of ‘is $4000 a lot of money?’
As I’ve previously stated, 4000 dollars is a respected figure to reach, so be proud if you’ve hit it.
While it often won’t cover more than four months of living expenses, it’s still a good amount to have saved.
However, if you’ve used it correctly, the 4000 dollars is an excellent foundation to launch yourself into financial freedom. This is through investing or starting your own business.
You can also use the money to pay off outstanding debts or simply keep it in a high-interest savings account.
While you can spend the money however you want, starting a business or investing will be a better option than wasting it on materialistic products.
Is $4000 a lot of money to you? Or, which one of the four strategies do you plan on using your money?