Saving money is no easy feat, and hitting milestones like $1000, $5000, or $10,000 is really encouraging. While it is a bit of money, this article will help you learn the question of ‘is $5000 a lot of money?’
To answer this question quickly, yes, $5000 is a lot of money, but it also isn’t in a lot of circumstances. Yes, it could be a lot of money for a 16-year-old, but it isn’t a lot for a 30-year-old who needs to pay for rent, health insurance, utilities, and more.
Without trying to deter you, this article will help you figure out how to maximize your $5k and turn it into a lot more money. I’ll also recommend a few ideas that you can do with your money.
Without further ado, let’s further unpack the question of ‘is $5000 a lot of money?’
Is $5000 Much Money?
$5000 is a lot of money, but it also technically isn’t. I know that answer will be confusing, but hear me out.
In America, the average rent for a one-bedroom apartment is $1098 a month. Factoring in utilities, transportation, clothing, food, healthcare, entertainment, and more, you can see how the average living expense quickly rises.
5000 dollars will generally cover 2 – 3 months of living expenses, and that number doesn’t factor in if you have children.
Also, your living expenses change with your age, income, and where you live. Someone in New York City will have a much higher living expense than someone residing in Mississippi; many factors change with location.
It’s also necessary to determine your age. Are you 20 years old with $5000 saved? Because that’s awesome!
Or are you 50 years old with $5000 saved? Because then you might be a bit behind.
If you’re wondering what a good amount of money is, I tend to believe that those with over $100,000 are in an excellent financial position.
Is $5000 in savings good?
Regardless of what I’ve just said, $5000 in savings is still an incredible number. 81% of Americans have less than $5000 saved, so if you’ve reached that amount, congratulations! You’ve done a great job. 😊
Reaching a figure like $5K has most likely taught you how to spend wisely, budget your money, and save correctly.
These skills are essential and will keep you on track to have a good relationship with money in the future.
I remember hitting 5000 dollars in savings, and I was ecstatic. I hope you pat yourself on the back, too, if you’ve reached this milestone.
What can you do with $5000?
Now, if you’re wondering what you can spend with 5000 dollars, here are a few suggestions.
Further down, I’ve got my personal recommendations of what you should do with $5K and how you can utilize the money to help you make more of it.
What can you spend $5000 on:
- A used car
- Five months rent of a one-bedroom apartment
- Furnishing your new apartment
- 5 MacBook Air’s
- An entry-level hot tub
Hopefully, those five ideas have given you a look into what you can spend for $5000. Next, I’ll get into what I recommend that you should actually spend your money on.
What should you do with $5000?
Now that we’ve figured out if $5000 is a lot of money, we’ll now discuss what you should do with it.
If you have this amount saved after you’ve paid off your living expenses, these are four ideas I’d recommend doing.
I know it’s a sluggish start, but saving your money is a great thing to do. You can just continue adding to your savings and try to hit your next milestone of $10,000.
It’s also essential to have a savings goal in mind, like buying a car or putting down 20% for a house deposit. Having a plan set in mind will help you achieve it quicker, as you’re not just saving aimlessly.
I recommend having a SMART savings goal, where it’s:
- Specific: What do you want to save for? E.g., I want to save for a starter house deposit.
- Measurable: How much do you plan to save? E.g., a 20% deposit is $46,680.
- Attainable: Is it realistic to save for? E.g., Yes, if I ruthlessly cut back on living and entertainment expenses for the next few years.
- Relevant: Is it worth saving for? E.g., Yes, because I want to own a home.
- Timebound: How long will it take you to meet the goal? E.g., five years if I save $180 a week, or just over 3.5 years if I save $250 a week.
You could also split the money in half, and keep one half in your savings account, and open up another account to put the other half in.
Just let the $2500 in the other account sit there as an emergency fund. This emergency fund is in case things go wrong; you’ll still have money as a backup safety net.
Pay off debt
The second thing I recommend is to pay off your outstanding debts. I know, another boring strategy to recommend, but you’ll thank yourself once you’ve done it.
Instead of paying ridiculously high interest rates on credit cards or student loans, why not try to pay them off as quickly as possible.
There’s no point in having money saved if you’re spending money on interest for your credit cards. It’s literally a waste of time.
I recommend paying off debts with the debt avalanche method.
Let’s say you have $10,000 in outstanding debts. List all of your debt by their balances, interest rate, and the minimum payment.
Allocate the minimum payment to all debts every month and furiously pay off the credit card with the highest interest rate.
Once that’s paid off, move onto the second-highest interest rate, and so on until all of your debt is paid.
You can decide the amount of money you want to put towards your debts but think about those interest rates and what you could be saving for instead.
Another thing I’d do with $5000 is start an investing account. Investing is an excellent way to make money on your money and let it compound over time.
Look, I’m not an expert with investing and still have barely grasped the concept of it, yet I’ve made $783.14 in market returns within a year (I’ve invested $5306 in total).
If I let that money sit in my 0.35% p.a. savings account, I would’ve earned only $18.57. Investing has earned me 4117% more than I would’ve made with my savings account.
This $5000 could literally set you up for a financially free future.
Don’t believe me?
If you invested $5000 into the S&P 500 (average returns of 10.7%) and contributed another $100 a month for 40 years, that number could turn into a whopping $971,000.
I know, it’s practically mind-blowing, but that’s the power of compound interest and time.
Start a business
The last thing I’d recommend doing with your money is starting a business. To begin with, $5000 is a great amount, and you can get a lot done with it.
If you have an idea that you think will work, go for it!
Instead of living life in regret and not seizing the opportunity, take the risk and see what comes to fruition.
It could become a failure, and you lose $5K, but at least you tried experimenting with something different and didn’t just go the usual route.
While it can cost a lot to start a business, starting a YouTube channel or blog can be relatively cheap, without much risk involved.
So that wraps up the question of ‘is $5000 a lot of money?’
If you’ve been able to save $5K, give yourself a pat on the back. It’s a significant milestone to hit and one that you should be proud of.
While we’ve already concluded that it generally isn’t a lot of money in most circumstances, if it’s used correctly, you could launch yourself into financial freedom.
Remember to use that $5000 for your savings, debt payments, investing, or starting a business, and you should be sweet.
How much money do you have saved?