How to invest £5000 – If You Have £5000 In The Bank Do These 5 Things
This is especially important in a world of higher-than-average inflation as we all navigate a higher cost of living whilst trying to balance that with preparation for the future.
Our goal is to give focus to your money so that it can grow for your future enjoyment as well as reduce anxiety and worry.
How To Invest £5000 – Do These 5 Things
1. Pay Off Expensive Debts
The first thing we would do if we had £5000 in the bank is to pay off expensive debts.
One reason I love asking people to work out their financial net worth is that when you do so, some really obvious things stick out to you.
But often when you have it all in your head, it's not very obvious.
A net worth is simply, looking at the assets in your life (e.g. savings, property, etc.) and comparing that to your liabilities (e.g. credit cards, overdrafts, etc.).
You add them up and take the total liabilities away from the total assets to get one number, which is your net worth.
Let's say you've got £5000 in savings and it's generating, say, 3.5% in interest for you.
But on the other hand, you have a credit card, which if you read very closely in your paperwork, is probably charging north of about 35%.
If you've got savings of £5000 in the bank, why would you leave the savings there generating 3.5% whilst having credit card debt where the credit card company is generating up to 35% in returns from you?
The first thing we would do if we had £5000 would be to take those savings and get ourselves a guaranteed return by paying off the credit card debt.
But the bigger point we want to make beyond using those savings to pay down credit card debt is to question, how did we get there in the first place?
Too many of us over-rely on using credit cards to sponsor our lifestyles.
We get it, some of us don't do it just because we feel like it. We do it because it's a necessity and a lot of people are struggling.
To get out of the debt spiral, one thing that can help you is to learn ways in which you can take control of your finances, and then look for ways to grow your money.
If that's something you want to learn to do practically, with step-by-step guidance, we have a free one-year programme that you can join as a starting point.
Every single week, depending on when you sign up once a week, you get a specific email, with the core goal of helping you become that person who:
- Stops relying on expensive debt,
- Takes control of their finances,
- Learns to grow their money.
So check that out, if it's something that you think will be useful to you.
Recommended: How to Pay Off Debts Fast On Low-Income
2. Rethink Your Savings
The reason I've come back to savings is because you might not have any debts at all.
You might be at a point where money is just sitting in your current account.
The very first thing to do is consider whether you've got enough of an emergency fund for when your car stops working, your boiler breaks down or you lose your job, etc.
I'd keep about £1000 to £2000 at minimum to cover those random things that you don't expect.
On top of that, I'd want to build that £1000 or £2000 to around 3 to 6 months of essential living expenses over time.
You are then prepared for what's to come. Look at recent trends. A lot of tech companies have been sacking people.
One day you feel like you've got job security, the next day you've been laid off.
You can also use that money to put into an easy-access account where you generate some returns.
At the time of writing, you might be able to get about 4.93% AER for your money according to Money Facts.
Or you can lock that money away in a fixed-rate savings account that can give you north of about 5% to 6% if you lock it away for about a year.
You can even split that money by having some in easy access and some in a fixed return account.
Obviously, with inflation being so high, your real return on that money remains negative.
Ultimately, what you want to do by having this safety cushion is to protect your well-being when misfortune inevitably takes place.
Recommended: How to Invest and Beat Inflation
3. Invest Low-Risk For High Returns
The third thing I would do with my £5000 in the bank is to explore investing.
Note that I've gone from talking about getting rid of expensive debt first before we look at investing.
Some things might seem obvious to you, but for some people, it might not be as straightforward.
Let me just illustrate. Imagine we've got two possibilities.
One is you have expensive debts (costing 35% APR) and the other is that you could invest your money and potentially generate a return of 8%.
It sounds obvious, but I want to just share this because, without illustrating it this way, it doesn't sink in for some people.
Although investing continues to grow in popularity, when you invest your money, you are doing so at risk. However, without risk, there's no return.
Paying off extensive debts first in this scenario is a no-brainer.
If, however, you've paid off this expensive debt, then investing money without worry becomes the next logical thing you should be doing.
Even though investing makes sense, a lot of people have the fear of actually losing their money.
That fear is usually born out of scarcity and that's okay. However, building any kind of wealth requires moving beyond that fear.
If you haven't started investing yet, provided you have paid off all expensive debt, start small.
Take £100 out of that £5000 and begin there. This is how we started investing.
One thing I know with investing is that once you begin with £100, although it might not feel like fireworks are going off, you are now investing.
Something psychological happens when you invest that first £100. You would have had to do some research, decide on what to invest in, etc.
To avoid losing your money, I would say begin with passive investing and keep it simple.
There is natural volatility that comes with investing i.e. it will go up and down, as different assets have different levels of volatility.
For example, assets that have almost no risk have very low volatility.
Examples of high-risk investing are individual stocks that have lots of volatility.
Whereas, index funds and ETFs have volatility as well but they're driven by market conditions, as well as by the specific risk in the basket of stocks they're investing in.
Their volatility is not as wild as putting all your money into one stock.
If you are a beginner, stay away from picking individual stocks, because you're reducing the chances of you losing your hard-earned money.
Our ultimate goal as wealth builders is to protect our money and make it grow.
4. Protect Your Assets
Next is to protect your assets. A lot of the time our efforts are typically focused on how to make that money 💰.
Whereas in a lot of our lives, there are certain small things we know exist, that we need to do to protect our money, which we leave as an afterthought.
“I'll get to that thing later”, when in fact, if things go wrong, we could be in a lot of problems, and could even lose all the wealth we've built 😤.
The core goal of protecting our assets here is that we know it's harder to keep that money than it is to make that money.
Two ways to protect your assets are to look at insurance and estate planning.
There are of course different forms of insurance:
- Home insurance
- Car insurance
- Life insurance
- Critical illness insurance, etc.
And then there's estate planning, writing wills, and so on.
Good quality insurance is vital and I have a lived experience of this through family loss where life insurance was needed.
I've also been through my mother almost dying from a brain aneurysm, where good quality travel insurance became extremely important.
These have been real-life traumatic experiences, but if we did not have good quality insurance we would have been in a lot of problems.
So I'm sharing this straight from the heart to say to you, if you have any money right now, in your bank account, ask yourself, do I have adequate coverage? 🤔
You might say, “I've got that coverage from my job.”
That's good that you've got some coverage. But I've known someone, again, very dear to me, who unfortunately got made redundant.
Out of that redundancy came the loss of the life insurance, loss of all those covers that their employer provided.
Perks which all sounded nice and are provided by big companies.
And of course, it became too late to get actual cover for themselves individually.
Don't Rely On Employer Insurance!
Think very carefully about yourself right now.
Everybody knows where they've got a gap in their lives, but they always brush it away or push it to the back of their minds.
- Where in my life right now have I got a gap?
- How do I protect that gap right now?
Go and do something about it. If you want to learn about Life Insurance, watch the video below and take action:
With regards to other forms of insurance, do some research on them i.e. home, travel, critical illness, health insurance, life insurance, etc.
5a. Beat The Fear of Failure
The fifth thing I'd put money into is to beat the fear of failure. Let's talk about it.
I want to hear from you because I can admit it, I've had feelings of failure on so many levels.
Comment and tell us how the fear of failure affects you.
When I had my corporate job, I was the only black man in the room working as a CFO and at board level being in those boardrooms surrounded by mainly white males.
In addition, everybody was older than me, and I felt like “What am I doing in this room?”.
I had serious impostor syndrome and a serious fear of failure on so many levels 😅.
One way I've learned to gradually overcome the fear of failure over time is to begin a passion project or a smart side hustle.
Start something. I hear too many people saying, “I'm gonna do X”, “I'm going to do this”, “I'm going to start this…”, etc.
Too much of this language of talking and not doing.
You need to put a line through the
“I am gonna” and start the thing already.
It's quite similar to my point about investing earlier and starting with the £100 or £500 investment.
Start small, create a budget with your £5000 in the bank, to explore something you have always talked about.
The key is to actually do it now rather than put it off again by deciding what idea or opportunity you'll put that money into.
Then everything else will rely on your:
- Sweat energy
- Skills and abilities
- Perseverance, etc.
My point here is, that it's not even that you're starting the thing to try and make money from it straight away, although that would be a great outcome.
Fear Can Paralyse Action Taking
The reason why I will use some of my £5000 in the bank towards this, is to use it to reduce or eliminate the fear of failure.
I feel so much more fearless in my life now because I have explored things. I've gone beyond just talking about them I've done them many times, in different spheres, at different risk and return levels.
We all need to get away from being a generation of people who are just fearful.
Not only are we lonely, but we are so fearful that we don't get anything done.
That fear paralyses us and crushes our generation. We need to let go of that fear by actually taking action.
👉🏽 Why do you think it's acceptable for you to rely on only your employer for your livelihood? 🤔
I just want to put that out there.
- Whose idea was that?
- Who sowed that idea in your mind that your employer should be your only provider?
Yes, your employment contract tells you this is all you should do. But when you think about it, is it all you should be doing? For real.
From my experience and those of the people who write to us or DM us to share their stories, it's not.
Don't put all your eggs in one basket. We teach this with investing, why are you doing it with your day job?
What I'm saying is to use some of your £5000 in the bank to actually do something that brings together your areas of skill and passion.
The second part of this fifth point is that I would use some of that £5000 in the bank to level up my learning.
5b. Upskill and Learn, Learn, Learn
I want to talk about this because a lot of people think that your education ends when you finish in the education system.
You go to school, then college, then university and you're finished.
When in fact, if you think about it, all that schooling stuff, which is all very important, in different ways, is the beginning of your real education.
I see education as a lifelong thing. It doesn't stop. Why doesn't it stop?
You should be growing as an individual and expanding your capacity.
Only then do you grow the wings that are necessary for you to take off so you can stop relying on other people to create your income for you.
I'd suggest learning high-income skills that will remain in demand in an AI world:
- Creating a digital business
- Public speaking
- Content creating
- Web development
- AI prompting, etc
My expectation of the future is that it will be made up of portfolio work i.e. doing a mixture of a job and other side businesses or interests.
So the more you acquire a diverse skill set and stay relevant, the more you'll sustain your earning potential.
I personally focus on learning from other people directly through coaching, reading books, being a part of communities of like-minded people or going to in-person events.
This approach has improved my skills beyond my core training in accountancy, finance and investing. I've developed skills in public speaking, digital marketing, sales, teaching, etc.
In addition, because I'm living and breathing these skills weekly doing my own thing, I explore them more deeply than people paid for these skills in their jobs.
The Future is Self Generated Income
There is definitely a shift happening. I believe that in the next 7 – 10 years, we'll see a greater trend towards portfolio work as the norm.
You will be doing a lot more to create your own income than you might be doing today.
Now is the time to do everything you can to acquire some specialised knowledge in a particular area that's fairly AI-proof.
In conclusion, the best investment you can make with £5,000 or $5,000 is to invest in yourself as the number one asset in your life.
Without doing that, all that will happen is one day, you get one of those mysterious emails asking you to come for a meeting at 2 p.m. with your manager and HR manager, and you know what's about to go down.
I know it because I've received one of those emails and thank God I was prepared 🙏🏽.
I hope that everything I've shared today has given you not just something to think about but something to do right now 😀.
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Which of the 5 ideas would you invest in and why? Please comment below to share or ask a question.
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.