3 Moves to Make When Your Savings Reach $25,000

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If you're sitting on $25,000 in savings , give yourself a pat on the back for a job well done. It's not easy to save that much money, especially at a time like this when living costs are through the roof.

But now that you've achieved such an amazing feat, it's time to make sure that money is serving you well. Here are three essential steps to take once you've gotten your savings to the $25,000 mark.

1. See if you're overfunded on emergency savings

You need to have a fully loaded emergency fund in case something goes wrong, whether it's your car breaking down, your roof getting damaged, or your job being eliminated. Generally, you want enough money in emergency savings to cover three to six months of essential bills. This way, if you were to lose your job, you'd be able to cover your costs without resorting to debt.

Perhaps you need $25,000 in emergency savings because you want six months of protection and your bills are on the higher side, or you live in an expensive part of the country. But $25,000 may also be more than what you need for emergency savings. If your essential costs come to $3,000 a month, even six months' worth of protection only requires you to have $18,000. So it's important to see where you're at.

2. See if you're ready to start investing

If you have more money in savings than what you need for emergencies, then you may want to invest the excess. A high-yield savings account might pay you an APY of 4.00% or 4.50% now. But in time, rates are likely to drop.

By contrast, the stock market's average annual return over the past 50 years is 10%. That accounts for years when the market did great and years when it tanked.

Let's say you realize that you don't need your entire $25,000 in savings for emergencies. Rather, you only need $15,000.

If you invest your remaining $10,000 in a stock portfolio that gives you a 10% return, in 30 years, it could be worth almost $175,000. Even if a savings account pays you 4.00% on your money that whole time (unlikely), you're only looking at growing your $10,000 into about $32,000 over 30 years.

3. Consider putting at least some cash into a CD for a better return

You may not feel like you're ready to invest your money. Maybe you're not sure what you want to use it for. Maybe you haven't done enough research on stocks and don't know where to start.

If you need to buy yourself some time, consider putting some of your money into a 6- or 12-month CD. Today's CD rates are fantastic, and even better, they're guaranteed.

With a savings account, you may be earning a certain amount of interest now. But if interest rates start to fall (which is likely to happen relatively soon), you'll find yourself earning less.

It's a great feeling to have $25,000 in savings. Make these key moves once you reach that exciting milestone so your money works smarter.

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