What to do with $100k
By Kevin Estes
Congrats!
Whether you’ve saved diligently or received a windfall, you now have $100,000. Congratulations! 🎉
Good on you for taking time to consider your options.
Without a plan, $100k can disappear faster than you’d expect. However, smart decisions can help secure your future.
Opportunities
Some of your many options include:
Protect yourself
Cut expenses
Invest in yourself
Make a major purchase
Invest wisely
Let’s explore each.
1. Protect Yourself
It all starts with a solid foundation.
Self-Care
Self-care is an often overlooked yet crucial part of a successful life. Investing in your physical and mental health can lead to a longer, more productive career.
Nutrition
Fueling your body with essential vitamins and minerals can help you:
maintain your energy all day,
improve focus and memory,
lower your risk of illness,
improve your mood, and
reduce anxiety.
A balanced diet can also limit the effects of aging and promote a longer, healthier life. Don’t skimp on food!
Exercise
Regular exercise provides many of the same benefits.
Physical activity can also help you:
fall asleep faster and wake up more refreshed,
develop discipline, and
reduce the risk of chronic disease.
Exercising with others is a bonus that can:
share accountability,
improve motivation, and
build community.
Adding an exercise routine can be a great use of both time and money.
Hobbies
A hobby can help you:
escape from daily stress,
foster creativity, and
develop new skills.
It can also help you connect with like-minded individuals and build meaningful relationships outside of work.
Paid Time Off
Your company gives Paid Time Off (PTO) for a reason. Use it or lose it!
Breaks can refresh, connect, and even inspire. Prevent burnout and boost productivity with a vacation.
Scheduling early can be important:
rentals, camps, and sites book,
flight prices rise, and
calendars fill.
It’s not just the availability of your friends and family members. Your team’s schedule can limit your options.
Summer and holiday coverage is often a struggle. Avoid the drama. 🎭 Call dibs. Schedule your Paid Time Off early.
Emergency/Opportunity Fund
Too little cash can lead to a vicious cycle:
less cash
increases expenses
especially interest charges, which
lowers cash and
restarts the cycle.
However, more cash can can start a virtuous cycle.
How Much
I generally recommend keeping three to six (3-6) months’ of living expenses:
$15,000 to $30,000 for a $5,000 monthly spend and
$30,000 to $60,000 for a $10,000 monthly spend.
That may need to be more with:
a single income,
variable compensation,
employment concerns,
real estate investments,
major upcoming expenses…
For instance, tax returns are due in a couple months. Someone expecting to pay may need to set some money aside.
Direct Benefits
Having cash is like driving with good shocks.
There will still be bumps in the road. They just hurt less.
Ample funds can:
avoid late charges and penalties,
reduce high interest debt, and
earn discounts by paying in advance.
Psychology
Even the wealthy can feel poor without ready access to funds.
When we’re stressed, our animal brain takes over. It’s fight or flight.
We make poor decisions when we’re anxious.
Time Savings
Several people I know played what I call a shell game.
They were constantly moving money around. It was like a part-time job!
Extra cash stopped the madness. Having more time and less stress helped them focus on more important activities.
Health, Life, and Disability Insurance
Proper insurance is a safety net when disaster strikes.
Health
Few things can bankrupt an American faster than medical expenses. It’s critical to have sufficient insurance.
A high deductible plan may not be best for someone with ongoing medical expenses. Higher premiums could pay off in the long run.
The opposite may be true for someone with few medical bills. Either way, insurance is a must.
Disability
The Social Security definition of disability is very limited. It requires an adult to be unable to work in any substantial gainful activity.
Think of a surgeon who loses the use of a hand. If she can work as a retail greeter, she might not receive any benefits!
Workers’ compensation is primarily for work-related injuries. That may only cover 40 of the 168 hours a week.
Disability can be worse than death financially:
costs - especially medical and caregiving - often rise
while income falls.
Disability insurance is crucial early in careers. That’s when we have the most future earnings to lose!
Life
Another advisor tells a tragic story about his neighbors.
They were a family of four: husband, wife, daughter, and son. The husband earned about $500,000 a year. They lived the good life!
Unfortunately, the father was driving down the highway with his son when a semi-truck lost control, jumped the median, and smashed into their vehicle.
Both the father and son perished at the scene.
The husband didn’t have enough life insurance. His surviving wife and daughter were ruined.
The financial devastation was preventable. A tiny fraction of the husband’s income could have covered the family.
Home, Auto, and Umbrella Insurance
Insurance protects not only us and our property but also damage we may cause.
Home Insurance
Real estate values and construction costs have risen. For many, home insurance coverage hasn’t kept pace.
An underinsured home may not receive full compensation after a loss.
Land typically isn’t insured. Covering the building’s full replacement cost may provide peace of mind without costing much more.
Auto Insurance
Auto coverage limits are often much too small.
Based on a report from the U.S. Department of Transportation, the average cost of an accident was:
$7,400 with property damage only,
$44,900 with a possible injury,
$79,000 with an evident injury,
$216,000 with a disabling injury, and
$4,008,900 with a fatality.
Those are in 2001 dollars.
I see coverage limits like $10,000, $25,000, and $50,000. They may be an order of magnitude too low!
Umbrella
There’s no way to compensate for the loss of human life. However, the American judicial system tries!
Umbrella insurance sits on top of other insurance - home, auto, motorcycle, etc. It pays claims that exceed those policies’ limits.
As a result, umbrella insurance requires higher limits on the other policies. It pays only in rare circumstances.
Since it’s used infrequently, umbrella insurance is quite affordable:
$1 million of coverage may only cost $200 a year and
$2 million of coverage may only cost $400 a year.
A general guideline is $1 million of umbrella insurance for every $1 million of net worth. However, it depends on the situation.
2. Cut Expenses
$100,000 can help lower expenses.
Insurance Deductibles and Prepay Discounts
Many people haven’t shopped their home and auto insurance in years, if not decades!
Key Factors
I feel the most important elements of insurance are the:
coverage limits and
solvency of the insurer.
It can be expensive to hire an agent who’s just down the street. Someone has to pay for their office!
I like to shop online insurers like Geico and Progressive. Trust everyone… and cut the deck.
Higher Deductibles
Insurance deductibles are what you must pay before the insurance company starts to reimburse for a loss.
It’s often win/win:
The insurance company pays fewer claims.
The insured pays lower premiums.
Insurance is for what you can’t afford to replace. It isn’t for regular expenses.
Raising deductibles can lower premiums a surprising amount.
Prepay Discounts
Some insurers offer steep discounts for paying early. The discount can be 25% or more paying six months in advance.
That’s like a 50% annual benefit!
Few opportunities have so much return with so little risk.
High Interest Debt
Paying off debt is another way to lower costs.
Consumer Debt
Interest on credit cards and personal loans are especially high.
As of November 2024, the national average interest rates were:
21.47% for credit cards and
12.32% for 24-month personal loans.
These might be the first places to start.
However, debt may be at a low promotional rate. It could make sense to focus on other opportunities until a low rate expires.
Car Loans
An auto loan may have the next highest interest rate.
The national average in November 2024 was a little less than 8%.
However, these are installment debts which could help improve credit scores with regular on-time payments.
Also, rising vehicle prices have led to bigger loan balances. It’s hard to pay off large balances.
Student Loans
Interest rates on student loans vary.
For federal loans, the current rates are:
6.53% for undergraduate loans,
8.08% for direct unsubsidized graduate or professional loans, and
9.08% for direct PLUS loans.
It may not make sense to accelerate student loan repayment if there’s a chance of student loan forgiveness. Also, up to $2,500 of student loan interest may be tax deductible each year.
Home Mortgage
The average home mortgage interest rates for the week ending February 6, 2025 were:
6.89% for a 30-year fixed-rate mortgage and
6.05% for a 15-year fixed-rate mortgage.
The interest paid on someone’s main or second home may be tax deductible. Lower interest and tax benefits may lower the priority of repayment.
Products Instead of Services
Tech companies have done well turning one-time purchases into monthly service charges. Flip the script!
Renting a Router
Are you renting your home internet router? If so, you may be shocked by how much it costs.
Buying a good router can pay for itself within a year. If it doesn’t work, you can simply return it.
Dining Out
Do you often:
eat out,
order take-out, or
have meals delivered?
If so, it may make sense to invest in a pressure cooker, slow cooker, air fryer, or other device.
Appliances can simplify meal prep and make it easier to cook. With enough use, one might pay for itself weekly.
Lawn Care
Do you hire a service for your lawn? If so, you might buy the equipment and do the work yourself.
Saving one season of lawn care fees may pay for a mower and other tools which last years.
3. Invest in Yourself
You may be your best investment!
Continuing Education
Courses, professional certifications, and advanced degrees can boost your earning potential.
The right program for you depends on your strengths, career interests, and opportunities.
Many employers reimburse tuition for degree-seeking students. These benefits are often capped at the tax-free federal limit of $5,250.
It’s important to complete a program once begun. Not finishing may incur costs without benefits.
Business Investment
Do you own a business or plan to in the future?
Grow
Owners have no shortage of growth opportunities.
Unfortunately, not all investments work.
Investing into a business is risky in part because it isn’t diversified. However, doing so may be the right move.
Buy
There are many ways to buy or build a business:
Purchasing an established company could be more expensive because of the lower risk.
Starting a franchise comes with the support of a network and more overhead cost.
Founding a company from scratch may be the least expensive option and come with almost no support.
If you’ve never owned a business, it may make sense to shadow an owner. Help out where you can and ask lots of questions.
An owner/operator often wears many more “hats” than employees.
4. Make a Major Purchase
Big ticket purchases could have long-term benefits. However, they could increase costs for years - if not decades.
Auto
Reliable transportation is key.
Lost Income
Not having dependable wheels can cost income. Punctuality can directly improve your compensation.
Time and Hassle
Breakdowns are a stressful waste of time.
Regular maintenance can help. However, it may not be worth the effort to further extend the life of an automobile.
If you’re spending more than $5,000 a year in repairs, it may be time to buy another vehicle.
Lease
Leases are designed to help people upgrade to newer vehicles every few years.
New vehicles have more depreciation. Dealerships must be compensated for that loss. As a result, leasing could be much more expensive long-term than buying.
Ride Sharing
Having a private chauffeur at your fingertips is amazing!
However, the cost of these rides can add up to more than owning a vehicle.
According to the Bureau of Labor Statistics, the average expense of owning an automobile was $12,182 in 2023.
Public Transportation
The quality of public transportation varies by location.
Although the cost may be low, it can add time to your commute.
Of course, that time may be used to:
relax,
study,
watch content,
read a book,
work, and more.
Home
A home is a long-term commitment.
If you’re confident you’ll live in an area for many years and your lifestyle supports home ownership, you might consider buying.
Lifestyle
Buying a home is like buying a lifestyle.
If it were an investment, it’d be an expensive one!
Switching homes often can drive up the cost of ownership. Dividing the purchase and sale costs by the years owned can be enlightening.
Rent
Rent is not just throwing money away! You’re paying for housing.
Your rent is often the most you’ll pay. Landlords pay for much - if not all - of repairs and maintenance.
A mortgage may be the least you’ll pay.
Since you’d pay to prevent issues and fix problems, you could need a larger emergency fund. Also, most of the initial mortgage payments go to interest.
Nonetheless, much of America’s wealth is in real estate.
5. Invest Wisely
Let’s assume you’ve:
protected yourself,
cut expenses,
invested in yourself, and
passed on major purchases.
You might invest the rest.
There’s no shortage of investment options. I prefer those that are truly passive, low-cost, and diversified.
Specific recommendations would depend on your situation. However, below are some accounts to consider.
401(k)
If your employer provides a company match on your retirement plan, contributing could be a high priority.
A match of 4% on 5% employee contributions is like an 80% gain!
Pre-tax contributions generally:
lower taxable income the year they’re made,
grow tax-deferred, and
are taxed when withdrawn.
Roth contributions generally:
do not lower taxable income the year they’re made,
grow tax-free, and
can be withdrawn tax-free if conditions are met.
Think of it like an orchard:
With a pre-tax account, the seed isn’t taxed but the harvest is.
With a Roth account, the seed is taxed but the harvest isn’t.
It may be possible to strategically minimize lifetime taxes.
Income taxes are progressive. The more you make, the more they take.
If your income is currently low, it may make sense to contribute to a Roth account.
If your income is currently high, it may be better to contribute to a pre-tax account.
It depends on many factors.
Employee Stock Purchase Plan (ESPP)
Are you able to buy employer stock at a discount?
How It Works
An Employee Stock Purchase Plan can be a powerful wealth-building tool.
A participant sends part of their paychecks to the plan.
Contributions are after-tax. Funds sent to the plan reduce what reaches an employee’s checking account dollar for dollar.
At the end of a time period - often six months - shares are purchased at a discount. The maximum discount is 15% for a qualified plan.
Lookback
The plan may also have a lookback. If so, the discount is based on the lower price at the beginning and end of each offering period.
Let’s say a plan offers a 15% discount with a lookback feature. The stock rose from $100 to $110 over the six months.
The employee’s purchase price would be $85:
15% off the
lower of the price at the beginning ($100) and end ($110) of the offering period.
If someone leaves before the shares are purchased, their money will be returned to them.
Check out this article for more.
Impact
After the purchase, the employee owns the shares. They may be able to sell right away for a gain.
A 15% discount is more like an 18% gain. It could be more with a lookback feature. That’s not bad for six months!
Contributing to the plan could be better than owning the stock outright. Here’s how a 10% increase or decrease might play out:
In both scenarios, contributing to the ESPP has a higher pre-tax return than owning the stock:
With a price increase, participants leverage the discount to buy more shares.
With a price decrease, participants avoid a loss and purchase shares at a discount.
Health Savings Account (HSA)
Contributing to a Health Savings Account may also be an option.
Not Use It or Lose It
Unlike a Flexible Spending Account (FSA), a Health Savings Account isn’t use it or lose it.
HSA funds are portable and can go with the employee when they leave the company.
Qualifying Plan
In order to contribute to a Health Savings Account, someone needs to be on a qualifying high deductible health plan.
A higher deductible may force you to pay more out of pocket for medical expenses. That might not be right for you!
Triple Tax Advantage
Health Savings Accounts offer a rare opportunity.
Contributions can:
lower taxable income when contributed,
grow tax-free, and
be used tax-free for qualified medical expenses.
That income may avoid tax altogether!
Check out the this article for more.
Spousal IRA
Someone who’s married and doesn’t work may still be able to add to their retirement account.
Adding to a spousal IRA may help a couple:
save for retirement,
lower their taxable income, and
reduce their tax bill.
The deadline to make a contribution for last year is 4/15 of this year. You may still be able to lower your 2024 tax bill!
Whether a contribution is tax deductible depends on:
how much the couple makes and
whether the spouse is covered by a workplace retirement plan.
For more, check out Ignoring the Spousal IRA?
Roth IRA
Someone may save even more with a Roth IRA.
Direct
As with a Roth 401(k), contributions:
are made after income taxes have been paid,
grow tax-free, and
can be withdrawn tax-free if conditions are met.
Those funds may never be taxed again!
An individual or couple must be below income limits to be able to contribute directly to a Roth IRA. Those limits depend on filing status.
Backdoor
Taxpayers above the limits may still be able to contribute to a Roth IRA.
Doing so is a two-step process:
contribute to a pre-tax IRA and
convert the funds to a Roth IRA.
However, watch out for the pro-rata rule!
Also, this process would lose the tax deduction. Choosing can be complicated.
529 Plan
Someone may want to save for the education of a loved one. This has become even more important with recent education uncertainty.
More Options
Funds can grow and be withdrawn tax-free if used for qualified education expenses.
529 plans can pay for:
K-12 private school tuition,
trade schools,
college, and more.
Contributions
There aren’t any income limits, which makes them popular with higher income families. Contributing may also lower state income taxes.
How much can be contributed is based on the annual gift exclusion, which is $19,000 for 2025.
Up to five years can be contributed at once. This “superfunding” enables gifts of:
$95,000 (5 * $19,000) from an individual and
$190,000 (double) from a married couple who files a joint tax return.
Remainder
Unused funds can be transferred to another family member or rolled into a Roth IRA if conditions are met.
A 529 plan could even allow you to save for your own education or retirement.
Mega Roth
A plan some companies have added recently is the after-tax 401(k). That’s different from a Roth 401(k).
Combined Roth and Pre-Tax Limit
Contributions directly to a Roth 401(k) and pre-tax 401(k) are subject to one employee contribution limit.
The most an employee under 50 years old can contribute is $23,500 between the two account types (2025). Adding to one reduces how much can be added to the other.
After-Tax Limit
An after-tax 401(k) works differently.
The contribution limit is $70,000 less:
employee contributions to their Roth/pre-tax 401(k) and
employer matching.
Someone who adds $23,500 and receives an $8,000 company match may still contribute another $38,500 to their after-tax 401(k).
Taxation
Unfortunately, the growth in an after-tax 401(k) may be taxed.
The original contributions aren’t taxed when funds are withdrawn. However, the growth likely would be.
In-Service Conversion
Fortunately, many companies with the after-tax 401(k) option also allow in-service distributions. That feature allows employees to move funds from the account while still employed.
Funds may be converted from an after-tax to a Roth 401(k).
That has two big benefits:
growth in a Roth 401(k) generally isn’t taxed when withdrawn and
conversions don’t count toward the $23,500 limit.
This two-step process is called “Mega Roth” or “Mega Backdoor Roth.”
Automatic
A custodian (Fidelity, Vanguard, Schwab, etc.) may automatically convert after-tax 401(k) contributions to a Roth 401(k) at the employee’s request.
While it may require a call to the custodian, it could save a lot of hassle.
Roth IRA
It may also be possible to convert the funds from an after-tax 401(k) to a Roth IRA.
That’s good news because many employees who’d take advantage of this option earn more than the Roth IRA income limits.
However, a Roth IRA conversion may not be possible until the employee leaves the company. Even if they could, it may be simpler to convert from an after-tax to Roth 401(k) since they’re both employer plans.
Taxable Brokerage
A regular taxable brokerage account is also worth a look.
Investments there could benefit from long-term capital gains tax treatment. Funds can be withdrawn from a taxable brokerage account penalty-free.
That may come in especially handy early in retirement.
Hey, thanks for reading my post on what to do with $100k.
Just reminder, I share a lot of resources that can help you.
Disclaimer
In addition to the usual disclaimers, neither this post nor these images include any financial, tax, or legal advice.