How should I use my savings?

How should I use my savings?
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Im 39. Single with no dependents (lonely I know). I make $100k annually between 2 jobs. The only debt I have is 132k on a house approx. valued at $200k. I have $30k in savings. I have a defined benefit pension from 1 of the jobs that I have contributed $120k. I am currently trying to decide what is the best use of my $30K in savings. Some things I am considering: A down payment on a rental property, Paying down my mortgage (3.75% interest), paying cash for a vehicle (current is 10 years old and will need to be replaced in the next 1 - 1.5 years), Funding Roth which I have not done in the past(I was in debt). First time in my life with any substantial savings, and I am not sure what the most beneficial use financially would be. I know I need an emergency fund. but I am saving money at a good rate and the $30k seems excessive to be just sitting in a savings. Help not good with this stuff. Thank you~


Hi @wstjean42,

Congratulations – looks like your finances are in really strong shape, and trying to figure out what to do with $30,000 is a good problem to have. The best choice will depend on your short- and long-term goals, but I will say that I’m a big fan of Roth IRAs, so potentially opening a Roth IRA with some of the money could be a smart decision. Do keep an eye on the income limits however; in 2019, a single filer who earns $122,000 or more can’t contribute the maximum ($6,000 in 2019 for those under 50). We’ve got more on the Roth IRA limits here and we round up our top picks for best Roth IRA providers here. And here’s a look at some of the pros and cons of a Roth.

I’m also a big fan of paying cash for a car when possible. We’ve got a great write up on some questions to consider when buying a new car.

You also mentioned the idea of putting a down payment on a rental property, and that’s definitely an intriguing idea, too. We talk a bit about real-estate investing, too.

Now that I’ve inundated you with reading materials :blush: I’m hoping others in the community might also jump in and offer ideas.

Either way, do keep in touch and let us know how it all pans out for you!


Welcome to the community! You sound like you doing pretty well, and we’re happy to offer some ideas that can help you do even better.

Having $30,000 in savings may not be excessive at all. Financial planners typically recommend a fund equal to three months’ worth of expenses. Since you’ve been in debt, you know how bad it can feel to have bills you can’t pay in full. An emergency fund can tide you over if you lose your job or face another big financial setback.

(I know it can be hard to have the money to sit there, losing ground to inflation, but you really want your emergency fund ready and available should you need it rather than at risk in the stock market or some other investment.)

If you’ve got money left over, then I’d vote for funding the Roth. We recommend saving at least 15% of your income towards retirement, and a Roth would be a good start on that. Are you currently contributing to retirement plan at work? If not, you may want to consider contributing to a taxable investment account as well and earmarking that money for retirement. A rental property could be a good supplement to your retirement savings, but it shouldn’t replace contributions to retirement fund. It’s hard to adequately diversify with real estate, but very easy to do so with stocks and bonds.

I wouldn’t rush to pay down the mortgage, since the rate is pretty low even if you don’t get a tax deduction anymore. If you credit’s good, you also could get a pretty low interest rate on an auto loan (although it’s still a good idea to put down 20% or more and keep the loan to four years or less).

There other ways of limiting how much you shell out for a car. I’m a big fan of buying cars that are two or three years old, since they lose so much value in the first years. Why not let the first owner take that depreciation hit? Holding on to a car for eight or 10 years is another good way to get the most out of your vehicle purchase. You’ll probably face some repair bills toward the end of that period. But as our car expert Phil Reed says, today’s cars are better built than ever so the repair costs are usually much less than you shell out buying new cars every few years.

Again, we’re delighted that you “turned to the Nerds,” and hope you do so again if you have any follow-up questions.


Thank you for all the info! Im looking forward to all my reading :slight_smile:


Thank you for all the info! 12.5% of my paycheck is automatically deducted as a contribution to my pension plan. You think the Roth is still necessary on top of that? I feel like the answer is always yes when ROTH is involved.


Thank you for all the info! yes, I contribute 12.5% of my paycheck automatically to my pension plan, and have for 14 years. The ROTH is still the best option on top of that? I feel like the answer is always ROTH if it is an option available. Thoughts?:slight_smile:


Hi @wstjean42! I’ll chime in here, too. I would probably still fund a Roth on top of that pension, at least until you hit the 15% savings rate that @lweston recommended. But I’d also suggest you run your numbers through our retirement calculator – it will tell you how much more you should be saving (or whether you’re already saving enough).


@wstjean42, at the risk of being drummed out of NerdWallet, let me put in a plug to make a plan, hit the benchmarks — and then budget for things and experiences you genuinely want. Money’s a tool, and its job is to help you life a well balanced life. You’re doing all the right things.


Yay! So glad you’ve got so much going into retirement savings. And you’re right about Roths…we get pretty excited about them, because of the current and future flexibility they offer.

Financial planners like their clients to have money in different tax “buckets” in retirement, to better control their tax bills. Payouts from regular IRAs, 401(k)s and traditional pensions gets taxed as income. Roths distributions are, as you know, tax free. You can also start building a third bucket: a taxable account, where you won’t face early withdrawal penalties or mandatory withdrawals in retirement, but you can qualify for long-term capital gains rates.

But @des has a point that life can’t be all saving and no spending. Balance is important.