For many Americans, saving $5,000 is a challenge. All over the country, lots of peoplefight to save, and while data differ on average savings,latest GOBankingRates surveyfound that nearly a third of Americans have $100 or less in their savings accounts.
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But just because you have $5,000 saved doesn't mean you have to stop paying attention to your savings or making reckless money moves. Consider the following six suggestions for what not to do if you have $5,000 saved.
1. Stop saving
Even if you're ahead of many others in how much you have in savings, that doesn't mean you should necessarily stop saving when you reach $5,000. As many financial experts recommend, you may want to have a larger emergency fund to cover three to six months of living expenses.
You'll also likely need to save and invest significantly more to afford your retirement, so try not to get complacent once you reach $5,000. According to aNorthwestern Mutual surveythe average American in their 60s has $112,500 in retirement savings, while the average American thinks they will need almost $1.3 million to retire. So $5,000 is a good start, but generally you'll need to save and invest money month after month, year after year to reach this level.
That doesn't mean you can never spend money, but the point is that you need to be clear about your savings goals and work towards them. Chances are you can enjoy savings of over $5,000. In addition to things like retirement savings, consider setting savings goals for future purchases, such as buying a car. Having savings to draw from could potentially cost you less than taking out a loan for new purchases.
2. Don't make overly risky bets
While you may think $5,000 is your ticket to bigger goals like having a fully funded emergency fund, achieving that usually requires patience and solid, long-term money management practices. What you probably don't want to do is make big, unnecessarily risky bets with that $5,000.
“Of course it's tempting to turn that $5,000 into $50,000 overnight. You'll come across all kinds of tempting offers, but high-risk investments are like a roller coaster you can't get off of. Choose safer options,” says Luis Andino , founder and CEO of the debt management appGully.
The exact steps you need to take may depend on your situation, but if you were to invest, say, the $5,000, you might do it in a diversified index fund instead of buying shares of a single risky company.
3. Don't spend too much on luxury
Saving money can make you feel like you can let go and reward yourself, but it can be a slippery slope. While you may decide to treat yourself to something small when you reach your savings goals, such as enjoying a nice meal, you want to be sure that you can still afford it and that small rewards don't lead to overspending.
“Don't spend on unnecessary luxuries,” Andino said. “It can be tempting to feel like this new safety net gives you the right to indulge in things traditionally outside your budget. But remember: lasting wealth is built by living below your means.”
4. Don't ignore high-interest debt
Some choose to build their savings while still in debt. While this may work in certain cases, such as if you need money for emergency expenses to avoid taking on more debt, you should still review your debt situation and see if it makes sense to spend more money to pay it off . .
High-interest debts in particular can cost you more money than you think.
“Something we see often at Ditch is people who have the means to pay off high-interest debt, but are putting it off. This deferment can be costly. High-interest debt, such as credit card balances, can snowball because of the interest, This results in thousands of interest payments being lost over time. If you have the money, make paying off these debts a priority,” Andino said.
“It's not just about reducing your debt; it's about not letting your hard-earned money end up in endless interest payments,” he added.
5. Don't forget what you want
Sometimes savings goals can be arbitrary and you can get too caught up in saving specific numbers, like going from $5,000 to $10,000 to $50,000, without thinking about why you're saving. If you're just focused on saving money, see how these savings can improve your life to support your livelihood. Try to find a balance between enjoying your money now and protecting it for the future.
"Don't forget yourself," Andino said. “Yes, it's great to be responsible, but completely neglecting your own needs can lead to burnout. Set aside a little for yourself; it's okay to enjoy your hard-earned money in moderation.”
6. Don't ignore interest
If you have $5,000 in savings, you may decide to keep all that money in a savings account. However, you could miss out on more money if you park this money without considering the interest you earn.
For example, if your savings account pays 0.01%, as some banks do, you will only earn $0.50 in annual interest. But if you put that money in a high-yield savings account that pays 5% annual interest, you'll earn $250 a year on that $5,000 (before you factor in taxes and compound interest). The choice of where you want to keep your savings can therefore make a big difference in interest income.
Overall, saving $5,000 is an achievement, but you should be careful about what you do next. You will probably have to weigh several factors. On the one hand, your savings journey is probably not over yet. But you don't want to have such a one-sided mind that you completely ignore your desires to spend your money. You also don't want to make mistakes, such as taking unnecessarily large risks or ignoring high-interest debt.
So after reaching this milestone, consider re-examining your entire financial situation, recalibrating your goals if necessary, and being aware of what will get you closer to those goals, rather than taking a step in the wrong direction .
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This article originally appeared onGOBankingRates.com:Have you saved €5,000? Here are 6 things you shouldn't do with that money
