Personal Finance

I’m 33 and making an extra $12k per month. If I already maxed out my 401k, what should I do with this money?

Kristin Hitchcock

Published: November 20, 2024 12:29 pm

24/7 Wall St. Key Takeaways:

• When deciding what to invest in, I highly recommend keeping your long-term goals in focus.
• Diversification is extremely important when investing, so don’t just pick one of the options below. Pick several.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

The first half of building wealth is saving money. The second half is trying to figure out what to do with that money! 

That’s exactly what a Reddit post in r/financialplanning was asking for advice on. How do you invest your money once you save it? The poster had already maxed out their retirement funds and was asking for what to do with the cash that was left over. 

Here are some of my suggestions. Remember, these are just my suggestions, not financial advice. 

1. Expand Tax-Advantaged Investments

Though the poster has maxed out traditional retirement accounts, they could explore other tax-advantaged options like:

• Health Savings Accounts (HSAs): If you qualify, an HSA offers triple tax advantages and can be used for future healthcare expenses or as an additional retirement tool.
• 529 Plans: If you plan to support education for yourself, your children, or future family members, a 529 plan offers tax benefits for educational expenses.

2. Invest Beyond Retirement

While this poster is planning well in advance for retirement, I’d also recommend placing money in a taxable brokerage account to build wealth with fewer restrictions, such as:

• Index Funds and ETFs: Using index funds and ETFs as investment vehicles is typically a good play. I recommend that the poster continue with this plan. 
• Dividend Stocks: A portfolio of dividend-paying stocks can provide passive income over time.

3. Alternative Investments for Diversification

That said, I don’t recommend placing all the extra money in stocks. There are other vehicles you can invest in, too:

• Real Estate: Consider rental properties, REITs, or real estate crowdfunding platforms to generate passive income and diversify beyond stocks.
• Private Equity or Venture Capital: If you’re open to higher risk, these can offer significant returns.
• Precious Metals or Commodities: Gold, silver, or commodity ETFs can hedge against inflation.

4. Optimize for Liquidity and Opportunity

The poster does have substantial savings in a savings account that is easy to access. For our readers who don’t have some cash saved up, I absolutely recommend keeping some cash in a place that’s very liquid. A high-yield savings account or money market funds are solid ideas!

5. Leverage Your Financial Position

Our Redditor is saving 12K a month, which is a substantial amount. This opens doors to a few different strategies:

• Real Estate Leverage: Use your savings for down payments on properties, allowing appreciation to work in your favor.
• Tax-Efficient Investing: Work with a financial advisor to optimize asset allocation and minimize tax liabilities.

6. Focus on Future Goals

The poster did not talk much about his future goals. However, I highly recommend keeping those long-term objectives in mind when deciding what you invest your money in. 

For instance, if the Redditor is planning on early retirement, it’s important to calculate how much money he’d need to retire and keep that goal in mind. Though he is single now, he might not be forever. If he sees a family in his future, considering trust or donor-advised funds is a solid choice.