What to do with $50,000? That’s a problem many people would love to have. If you do have it – or if you’re just curious – we have some answers!

If you’ve recently come into a $50,000 windfall, your mind is probably bursting with possibilities. That may not be enough money to retire on, but it’s certainly enough to improve your life significantly.

For example, you could use it to wipe out your credit card debt, put a down payment on a house, or start a new business. But having all those options in front of you leaves you with a problem: Which ones should you choose?

While that may be a problem we’d all like to have, it’s still a problem. Fortunately, this guide will help you solve it. Let’s go over some steps you can take to figure out what to do with your $50,000.

What to Do With $50,000

It’s tempting to treat an unexpected windfall as free money and spend it on your dream car or a luxurious vacation. However, using it strategically instead can bring you years closer to reaching your financial goals, so you shouldn’t waste the opportunity.

Here’s how you can make the most out of your money.

Women thinking what to do with $50,000

1. Take a Beat and Make a Plan

When you come into a lot of cash, the worst thing you can do is to get caught up in the excitement and make rash decisions. That’s how you end up wasting some or all of your funds. $50,000 can disappear faster than you think!

To avoid that trap, wait a while before making moves with your money. Assuming you’re not in the middle of any financial emergencies, give yourself at least a few weeks to come to grips with your new financial position.

During this time, it’s often wise to share the good news with a financial advisor or a Certified Public Accountant (CPA), especially if you already work with one. An expert opinion can reveal beneficial ways to use the funds you might not have considered.

However, be cautious about sharing the news within your personal circle. If word gets out to your family and friends that you’ve received $50,000, you may feel pressure to share, even if no one asks you outright.

There’s nothing wrong with giving some of your cash to someone you care about. However, you want to be able to make that choice freely, not because you feel guilty.

2. Set Aside Money for Taxes

The second thing you need to take into consideration when wondering what to do with $50,000 is to set aside some money for taxes. Many windfall sources are subject to ordinary income, capital gains, or some other type of tax. For example, all of the following are potentially taxable:

  • Lottery winnings
  • Signing bonuses
  • Legal settlements
  • Inheritances from relatives
  • Proceeds from selling assets
  • Proceeds from selling a business

Of course, there’s no guarantee you’ll face a tax bill. Whether or not you do depends largely on your circumstances. For example, money you inherit from someone who’s passed away is only taxable in a few states.

However, it’s better to be safe than sorry. The last thing you want is to spend or tie up your money only to find out you have a tax liability you can no longer afford. To ensure that doesn’t happen, set aside 25% to 30% of your funds somewhere safe and accessible, just in case.

If you’re unsure whether you owe taxes on your $50,000, that’s another good reason to consult a CPA. They’ll be able to answer your questions and ensure that you avoid getting into trouble with the Internal Revenue Service (IRS).

3. Pay Off (Or Prevent) High-Interest Debt

Compound interest is one of the strongest forces in the universe, right up there with gravity and the urge to keep eating potato chips after having the first one. You want it to work for you, not against you.

So, if you’re not sure what to do with $50,000, using a part of this amount to pay off high-interest debt should be one of your first priorities. Generally, that refers to anything with an interest rate higher than the return your investments can generate. The average stock market return is about 7% to 10%, so that’s a good measuring stick to use.

Unsurprisingly, credit cards are the most common type of high-interest consumer debt. The average American has a $5,910 credit card balance[1] with an interest rate of roughly 22%[2].

If you were to settle for making a 3% minimum credit card payment, it would take you four years and four months to pay off that debt, during which you’d accrue $3,307 in interest charges. That’s more than 50% of your original balance.

To avoid such wastefulness, use your windfall to pay off as much of your credit card debt as you can. Similarly, it may be a good idea to put some of it toward any large and necessary purchases you would otherwise need to finance.

4. Build Up Your Emergency Fund

Generally, the best use of your windfall is to deal with any financial emergencies you’re experiencing, such as high-interest debt. Assuming those are all taken care of, the next best use of it is to protect yourself from future financial emergencies.

That means establishing an emergency fund, a cash reserve you keep to pay for unexpected expenses when they arise. Like the cash you set aside to cover your potential tax bill, it should go somewhere safe and accessible. Ideally, it should also earn you a modest return. Typically, an online savings account is the best option.

When planning what to do with $50,000, think about building up your emergency fund until it can cover at least three to six months of expenses. That’s about the length of the typical job search. Of course, it can be a good idea to increase the amount in certain financial circumstances.

For example, you may want to keep as much as 12 months of expenses if you plan to start your own business soon. That gives you plenty of financial runway to survive an extended period of little to no revenue.

However, there is a point of diminishing returns. Eventually, the rest of your money will serve you better in something that provides a higher yield than an online savings account.

5. Contribute to Your Investments

Once you’ve dealt with your most pressing financial issues, you should consider putting the rest of your windfall toward longer-term concerns, such as your retirement or your children’s college education.

You probably have decades to save for these expenses, which means you can leverage the power of investment returns to do most of the work for you. There may be no way to know how they’ll perform in a given year, but you have a long enough time horizon to ride out any volatility and earn a good rate on average.

In addition to helping you harness the power of compound interest, you can use these investments to save money on your taxes. For example, contributions to tax-advantaged accounts like traditional IRAs are tax-deductible.

Of course, you can’t just throw your money into any old portfolio. If you have even a quarter of your $50,000 windfall left for investments, there’s still a lot of money at stake. Make sure you have a well-researched investment strategy you believe in before moving forward.

This is another stage in the process where you might want to consult a financial advisor, though you should still do your own due diligence.

📚 Learn More: New to the investment world? Our complete guide breaks down everything you need to know about investing for beginners.

6. Treat Yourself or Your Loved Ones (Responsibly)

This may be controversial for a personal finance writer to say, but you don’t have to put every last cent of your windfall toward your financial goals. If you’ve responsibly planned what to do with $50,000, feel free to spend some of it on things that you or your loved ones will enjoy.

One good strategy is to treat the windfall like you would a paycheck. Build a budget and allocate a percentage to various categories. For example, you might put 30% toward paying off high-interest debt, 20% to your emergency fund, 35% to investments, and 15% to discretionary expenses.

With a $50,000 windfall, 15% is still a whopping $7,500. That should be enough to treat yourself to something luxurious that makes you feel like you’ve gotten to enjoy and celebrate your good fortune.

📚 Learn More: Take the first step towards financial stability by learning how to budget with our easy-to-follow guide.

Make the Most of This Opportunity

$50,000 might not make you rich overnight, but it can significantly improve your financial position. Even if you’ve made mistakes with money in the past, by learning what to do with $50,000, you can turn your personal finances around.

Everyone’s circumstances are unique, so there’s no universally correct way to use the windfall. However, one rule always applies: You must avoid rash decisions and plan carefully before making decisions.

This isn’t an opportunity that most people get, and those who do usually don’t get a second, so make the most of it. If you do, you’ll be able to reap the rewards for many years to come.