She received a reward of $10,000. I'll pay off my credit cards. What should I do?

1. About half of my emergency fund is funded from an online high-yield savings account, which saves me three months of expenses.

2. I have about $60,000 in student loans. I can pay off a few smaller loans, because they have lower interest.

3. I have a personal brokerage account that I haven't interacted with much. I currently have $500 invested in it.

I grew up very poor, so I'm not used to having large amounts of money at one time. My upbringing gave me the mentality of saving rather than spending.

Whatever I do, I want to put the money to good use. Any advice is appreciated.

Learning, saving and investing

Related: “I received an insurance claim check for $22,000”: Why does it take five days for my check to cash?

Dear learning,

You are in good shape and making all the right moves.

You have an emergency fund from which you can take advantage of the higher interest rates on offer since the Fed started raising interest rates two years ago. Unfortunately, this also increased interest rates on loans. The average interest rate on federal and private student loans is currently 5.8%, while the average interest rate on federal loans is about 6.36%, according to the Education Data Initiative.

So throw at least some of your bonus toward your student loans with the highest interest rate. Doing so should feel as good as, if not better than, taking a vacation. If you put part of what's left after paying off your credit cards toward your student debt, add another $4,000 to your savings account and put part — say, $1,000 — into your brokerage account. As you know, with compounding, you can make money on both the original amount and the appreciation.

I assume from your letter that you are just starting out in your career and owning your own home may be out of reach at this time, but it won't always be that way. You'll be surprised at what you can achieve if you keep doing what you're doing: planning for the future, saving, and working your way up to a better-paying job. Ideally, you also contribute to a Roth IRA, which allows you to invest after-tax dollars, or a 401(k) with employer matching.

Because your student debt is locked in at a low rate, Paul Karger, The managing partner of TwinFocus, a wealth advisory firm in Boston, advises keeping that premium amount for now because you're effectively earning what the investing world calls “positive carry.” If you can invest your money at a higher rate (5%-+) he advises you to do so. “To the extent you don't have any immediate cash needs, we'll partially fund the Roth IRA contribution with $2,000 to $3,000 and keep the balance in a high-yield savings account for rainy day surplus,” he says.

Establishing sound financial patterns

If your job offers a high-deductible health plan, you may want to take advantage of a health savings account, or HSA, which is an account to which you can contribute pre-tax money to use for qualified medical expenses. For 2024, the maximum contribution to plans is $4,150 for an individual, up 7.8% from last year, or $8,300 for a family, up 7.1% from last year, according to the Internal Revenue Service. There are pros and cons to these plans: you can read more here.

Everyone will have an opinion about what you should do, but you can't do everything at once. You can go all out, eliminate your loans, put money aside for a rainy day, and start accumulating money for a down payment on a home. But people are having a hard time keeping up with rising rates: delinquencies on credit cards and auto loans are at their highest levels in more than a decade. Millennials are particularly affected by the former.

What you are doing now is creating healthy patterns of saving, investing and spending. These will serve you well in the future. Yes, it is important to enjoy life too, but you can enjoy a good vacation these days by renting an Airbnb ABNB,
+2.09%
With friends and share the costs. You don't have to splurge on a five-star hotel or lounge by the pool in the Caribbean to feel like you've given yourself a break from work and the sometimes stressful routine of daily life.

The goal of good financial planning and happy living—ideally when these two things come together—is to maintain a balance between living in the moment and knowing that you'll have enough money for retirement. The sooner you start using the latter, the better. Looking at what others have achieved can lead to financial paralysis, making you want to give up and just think about today. But every small achievement today will count for a lot tomorrow.

Go easy on credit cards, and be kind to yourself.

paying off The Moneyist on Facebook A group, where we search for answers to life's thorny money issues. Post your questions, tell me what you'd like to know more about, or participate in the latest Moneyist columns.

The Moneyist regrets that he cannot respond to questions individually.

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