How to use $5k

[id243059]

Hey All-

I was recently given $5k (nice, I know). I'm debating on how to use this gift to its fullest potential. Just to give you some background: I'm 26 years old, have owned a home for about a year and saved up about $25k (not including the $5k).

Right now, I need an additional $2k to fully fund my emergency fund. So, part of that $5k will go to that. I'm unsure how to utilize the remaining $3k. I believe these are my options:

1. Use it to pay off some student loans (current balance of $12k, pay $167/mo)
2. Open a bond index fund
3. Add to my mutual fund
4. Save it to put towards a down payment for a rental property in the future.


Thanks for reading this and I hope to hear from you.

ID

[jteezie]

Roth IRA

[disneysteve]

What is the interest rate on the student loan?
What are you currently saving for retirement?

[kork13]

1) Depends on the interest rate. If it's below 3-4%, I wouldn't drop the cash on the student loans. You can probably do better elsewhere. Keep in mind, your student loan interest may be tax deductible too, so that *effectively* lowers the interest rate as well.
2) Wouldn't necessarily recommend a bond index fund right now... With interest rates so low, it's probable that bond mutual funds could lose value when the rates begin to rise. It depends on your timeline, risk tolerance, and where you think the economy's going.
3) Assuming it's a mutual fund with low expenses and reasonable performance, this isn't a bad option.
4) Also not a bad idea. Where would you save it? What do you expect to earn on this savings?

Option #5: As jteezie said above, you should look at putting it into a Roth IRA. Do you have a Roth IRA opened yet? That you didn't mention it as an idea makes me think that you don't... However, that's probably your best option IMO. Invest it in a good mutual fund inside a Roth IRA account, which will have the next 40+ years to grow tax-free. And then keep contributing to it, and max it out every year ($5k/yr). Just doing that will go a long way for putting your retirement in good shape.

[Frugal]

If it were me (and this is just my opinion) I would put it towards paying off the student loans with the highest interest rate first. This is what I am doing with whatever extra dollars I have.

[bjl584]

Do you have any other debt besides the student loans? Mortgage? Auto Loan? Credit Cards? If so, then you could use the money toward that. If not, then I also like the idea of starting a Roth IRA for yourself.