Has your savings balance finally hit $100,000? If so, congratulations on reaching this financial milestone! Chances are, you had to apply a combination of discipline and hard work to get here.
Once you’ve taken a beat to celebrate, you may notice a feeling of uncertainty set in, especially when it comes to deciding where to put the money. You may even feel overwhelmed when you think about spending time opening new accounts and moving the funds around.
It’s natural to feel unsure about what to do with such a significant sum of money, considering it doesn’t come with an owner’s manual. But with that said, there are tried-and-true strategies for prioritizing where your money goes.
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If you’ve got high-interest debt — loans or lines of credit with an annual percentage rate (APR) of 6% or higher — do yourself a big favor and pay it off ASAP. For most people, this will include credit cards, which currently have average interest rates above 21%, and personal loans, which average over 12%.
Why should paying off debt be your first priority? Because it’s very rare to earn more than a 6% return from any investment, and it’s almost unheard of to earn that much from a bank account. In other words, there’s no investment that will earn you enough to offset the cost of carrying high-interest debt.
Read more: What’s more important: Saving money or paying off debt?
As the saying goes, “Expect the best, but prepare for the worst.” Putting some of your money into an emergency fund allows you to do just that.
You’re bound to encounter an emergency expense every once in a while, such as a major car repair, a medical bill, or other unexpected cost. Having an emergency fund allows you to cover that expense without going into debt or using money earmarked for other financial goals.
The best place to keep your emergency fund is in a savings account where you can access the funds at any time without penalties. However, if you want to earn the most money possible on your emergency fund, consider putting it in a high-interest bank account, such as a high-yield savings account (HYSA) or a money market account (MMA).
Read more: The 4 best (and worst) places to keep your emergency fund
Once you’ve created your emergency fund, the next goal to focus on is creating sinking funds for specific, upcoming purchases. Common expenses you might create a sinking fund for include:
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Vacation
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Wedding
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Childbirth/maternity leave
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Down payment on a car or home
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Home renovation
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College tuition
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Planned medical procedure
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Business taxes
Since you won’t need the money right away, you can put your sinking funds into a time deposit. These accounts, which include CDs and Treasury bills, require you to leave your money on deposit for a set period of time. In exchange for tying up your money, they typically pay higher interest rates than the average savings account.
Read more: What is a sinking fund, and why do you need one?
After covering your short- and mid-term savings needs, consider boosting your long-term accounts — or, as they’re better known, retirement accounts.
The best retirement account to invest in depends on some of your personal circumstances, so it’s wise to seek guidance from a financial advisor. However, for many people, the best move is to contribute up to the annual maximum allowed for a 401(k) or another employer-sponsored retirement plan. If you still have savings left after that, consider putting the rest toward a traditional IRA.
With both options, you’ll benefit from a reduction in your taxable income for the tax filing year, and you’ll earn compound interest on your investments.
For the 2024 tax year, you can still contribute to your retirement accounts up through April 15, 2025. Here are the maximum contributions allowed:
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2024: $23,000
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2025: $23,500
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2024: $7,000 (under age 50), $8,000 (age 50 or older)
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2025: $7,000 (under age 50), $8,000 (age 50 or older)
Catch-Up Contributions (for ages 50 and older)
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401(k): Additional $7,500 for both 2024 and 2025
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IRA: Additional $1,000 for both 2024 and 2025
Read more: Retirement planning: A step-by-step guide
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