Congratulations, you’ve earned money by being a surrogate, but now what do you do with it? Just letting it sit is the biggest mistake you could make. Instead, investing your compensation will make your money grow.
Investing may seem intimidating, especially if you’re new to the finance world. But we’ve outlined some easy and simple ways to get started below.
Why you Should Invest your Surrogate Income
You might think you have $50,000. Why should you invest it? That’s a lot of money!
One word – inflation.
Every dollar you have today will be worth much less in the future. If you’ve ever heard your grandparents or parents talk about how cheap groceries, gas, or other things used to be when they were younger, you’ve heard about inflation. The cost of everything increases as the years progress, and without investing and letting your money grow, it could be hard to keep up.
Investing your money to let your earnings earn money is one of the best ways to prepare for the future and have more money with little effort.
Factors to Consider When Investing your Income
You worked hard and sacrificed a lot to earn this money, so it’s essential to consider these factors when deciding how best to invest your income.
The market will always be risky, but that doesn’t mean you should invest your money in the riskiest investments and take a chance. Decide what you can stand to lose (and can’t), and choose your investments based on their risk.
Choose what you want to happen with your money. Do you want to buy a house, save for retirement, or do something else? Your goals will also determine the best investments.
The more time you have to reach your goal, the riskier the investments you can make because you’ll have more time to make up for any losses. If your timeline is short, you’re better off choosing less risky investments.
Diversifying your portfolio means splitting your money into multiple investments. Don’t put all your money in one investment because if it fails, you lose everything. But if you diversify, you reduce the risk of losing everything.
The Top Investments to Consider
Now that you understand what to consider, let’s look at some top ways to invest your surrogacy money.
High-Yield Savings Account
First, always ensure you have an emergency fund available. This is a fund you can dip into should you have a sheer emergency, such as job loss, a car accident, or a major home issue, such as a broken hot water heater.
To be on the safe side, put three months of your expenses in a high-yield savings account. This ensures you’ll be financially secure in an emergency, but your money still earns a decent amount of interest.
Pay off Debt
If you have a lot of high-interest consumer debt (10% or higher), consider paying the debt off first. This might not seem like an investment, but you won’t find any investment with a yield higher than 10%, so paying your debt off is like investing in yourself because you’ll save on the interest costs.
Invest in Stocks
Stocks are a risky investment, so invest with caution. The key is to use your goals, timeline, and risk tolerance to build your stock portfolio while ensuring you diversify, aka invest in stocks in various industries. For example, don’t put all your money into healthcare stocks. If the healthcare industry declined, you’d lose everything. Instead, invest in various sectors, such as healthcare, technology, retail, and foreign stocks (just as an example).
You can invest however much you want in stocks. For example, if your risk tolerance is low, you may only want to invest a small fraction of your money in stocks for some aggressive growth while minimizing the risk.
Consider Buying a House
Buying a house is an investment and one of the best you can make. Real estate generally appreciates and is an excellent hedge against inflation. Of course, the market often declines, but if you’re in it for the long term, you should see a gain.
You probably won’t need to put your entire earnings as a down payment on a home unless you want to because you can leverage your investment with mortgage financing.
Most popular mortgage programs require a minimum down payment of 3% – 5%, or $3,000 – $5,000 for every $100,000 in sales price. Of course, the more you invest, the lower your mortgage payment and the more equity you’ll have in the home.
All portfolios should have a portion of the funds invested in bonds. They are a low-yield investment, meaning the return won’t be incredible, but they are safe.
When you invest money, the lower the risk, the less the reward, and vice versa. Having at least one non-risky investment in your portfolio provides stability to help you reach your financial goals.
Invest in Retirement
Even if retirement seems light years away, investing in it now will ensure a comfortable retirement. The earlier you invest, the more time your money has to grow, helping you reach your retirement goals.
If you’re employed, and your employer offers an employer-sponsored 401K, consider investing in it. This is especially important if they offer employer-match, which means the employer will match your contributions up to a certain percentage of your income. The most common employer match is 3% of your income, so if you make $50,000 and contribute $1,500 to your 401K, so will your employer – that’s like a free $1,500 investment!
If your employer doesn’t offer a 401K, consider opening an IRA with an online brokerage, such as E*TRADE or Betterment.
As you can see, investing your money is the best way to make it grow. But even letting it sit in a basic savings account isn’t enough. The interest rates are minimal. Instead, help your money grow by diversifying where you invest it and allow yourself reach financial security with smart financial decisions.