Invest, Save, or Spend: Put Your Home Sale Proceeds Toward a Better Financial Future

Think about your home sale proceeds in 3 financial buckets

Essentially, there are three main things you can do with the money you receive from the sale of your home: invest it, spend it, or save it. The devil is in the details — knowing how much to put in each bucket, where it goes from there, and how to make the best use of every dollar.

Here, we’ll break down each option with ideas for how to manage your money wisely, however you choose to divide it up.

1. Invest your home sale proceeds to make money out of money.

Logical investments provide you with more income down the road. The key is knowing how to use your home sale proceeds to invest in financial assets that will provide profitable returns.

Buy another property.

Remember how much you bought your house for and how much you can sell it for now? Not a bad investment, right?

“Most people, when they sell a primary residence, take the funds and reinvest it into their next house,” says Chris Carter, a real estate agent who works with 78% more single-family homes than the average agent in Jackson County, Missouri.

It’s common to sell a home, then turn around and use the money you’ve gained to purchase another home, and repeat the process down the line.

If you don’t want to buy a new home to live in, you could use the money to purchase an income property. From there, you can rent it to tenants to make immediate income and grow equity in the property over time.

If you plan to buy another property with the proceeds of your home, Carter says to be prepared to put money down upfront. You may need anywhere from 3.5%-20% of the sale price as a down payment for a mortgage, depending on the loan you choose.

“Talk with a professional first and figure out what you can afford, how you’re going to structure your loan, what you’re looking at for a monthly payment and the down payment, and where that money is coming from,” Carter says.

How does HomeLight’s Buy Before You Sell work?

If you’ve found your next dream investment property but don’t want to wait for your home sale proceeds to purchase it, there’s another solution that could be right for you. HomeLight’s Buy Before You Sell (BBYS) program is specifically designed to simplify the process, so that you can buy your next property before even listing your current home on the market.

Here’s what you can expect to happen when you use Buy Before You Sell:

• Unlock your equity: Tell us a little bit about your situation, and we’ll help you unlock a portion of your current home’s equity as quickly as a few hours later. We’ll tell you how much you can access, based on factors like your home value, outstanding loans, and your financials.
• Use your funds: You can put that equity toward the down payment on your next home, moving expenses, closing expenses, or property repairs.
• Make a strong offer: Now, you’re ready to go out and make a non-contingent offer on your dream home — in competitive markets, this can be a game changer.
• Sell your existing home: We’ll work with a top HomeLight agent to list your vacant home on the market to attract the strongest offer possible. Having already moved out, you won’t have to worry about selling a house that you’re still trying to live in.

Want to learn more? Check out this quick video about HomeLight’s Buy Before You Sell program:

Explore the stock market.

Take all the money you made in your home sale and turn it into more money with the purchase of stocks and bonds.

Talk to a financial advisor or stockbroker to choose the best stock investment options for you. No matter how much money you choose to invest in the stock market, the savviest financial pros can get every dollar working in your favor.

Sunny Wang, president and financial advisor at Essence Wealth and Insurance Services in Santa Clara, California, has a 5-star ranking on Yelp. He advises his clients to put their money to work as soon as possible.

“You can’t work forever. But money can,” he says. “Money works 24 hours a day, 7 days a week. So put your money to work right away.”

When it comes to investing, Wang says the earlier you start, the better. If you hold onto cash for just a few months, you’ll miss out on a potential return.

“If you had cash in the last few years that you never invested, you just missed probably 50% in return. $100,000 was turning into $150,000,” Wang says.

Investing in the stock market, of course, isn’t without its risks. It’s not something you can jump into — there’s a lot more than just, “buy low, sell high.” If you’re a first-time investor, consult with a professional before you invest in any stocks.

2. Spend your home sale proceeds while thinking about the long term.

Resist the urge to splurge on material items with the new cash in your pocket. If you are going to spend your money, think long-term about putting it toward experiences and investments in yourself that you won’t look back and regret.

Pay off debt.

Use your home sale proceeds to pay off debts for credit cards, loans, or medical bills. It’s not as satisfying as a return on investment or a shiny new watch, but it will help your financial stability in the future.

According to a January 2024 report by Yahoo! Finance, 61% of Americans are in credit card debt, and 23% of those say they go deeper into credit card debt each month.

High interest rates make it harder to pay back debts, and the more you owe, the more interest you’ll have to pay.

Debt can also negatively affect your credit score and make it harder to get approved for loans on purchases like cars or homes. Your home sale proceeds can relieve some of the stress of lingering debt and give you the freedom do something productive with the money you make moving forward.

Invest in priceless experiences, memories, and skills that last a lifetime.

Instead of a shopping spree, spend money on something that will last for years and may even help you make more money some day.

Material items like electronics, clothes, and cars can seem worth it in the moment, but these items eventually become obsolete when a newer version comes out.

Instead, use your spending money on these things that never lose value:

• Education. Learn a language, a new instrument, or a skill that will add value to your life or career.
• Travel. For the same amount you’d spend on a fancy new laptop, you could visit a different country and immerse yourself in a culture for a priceless experience.
• Experiences. Have you always wanted to go skydiving or see your favorite performer live? These fulfilling experiences will make you happier than any designer handbag.

3. Save your home sale proceeds so you always have a backup plan.

Set up an emergency account.

It never hurts to have some money saved for a rainy day. A recent article by CNBC reveals that less than half, or 47%, of Americans have money set aside in ase of emergency. Yikes.

Non-essential expenses like entertainment subscriptions shouldn’t be budgeted into your emergency funds. And although the general rule is to save 3-6 months of salary, it all depends on your spending habits.

“Hire a professional to conduct a cash flow analysis to tell you how much you need to cover your monthly expenses,” Wang says.

Keep it for a down payment on a new house.

Even if you aren’t planning on buying a new house right away, who’s to say you won’t change your mind in a few years? With the financial ability to put money down on a house, you’ll save yourself time and stress if you stumble upon your dream home.

Add it to a college fund.

It’s never too early to start saving for college, even if you’re still changing diapers! Throw some money into a college savings account for your kids to prepare for their future and avoid student loan debt.

According to the Education Data Initiative, the average cost of a four-year college education is about $153,080, or $38,270 per year, including books, supplies, and daily living expenses. There are different college savings accounts to choose from that have various tax benefits for your financial needs. Talk to a financial advisor to create a college savings fund that works in your best interests.

Save it for retirement.

The cost of retirement is one of life’s biggest expense, sometimes more than the costs of college, a child, and a home combined. The average cost of retirement in the United States is a whopping $835,453 for 25 years and $1,003,548 for 30 years — and most Americans aren’t prepared to retire at 65 and live until 90. The biggest issue with saving for retirement is that you really don’t know how much you should save.

“The time horizon is very important. If you set aside money that’s going to be for retirement and you’re in your 30s or 40s, you have long, long time before retirement,” says Wang. And that presents many tempting opportunities to dip into the funds earlier than you’d intended.

But it’s never too early to start putting money into a retirement fund. Talk to your financial advisor about the best plan of action that will help you prepare for a long, prosperous life beyond your career years.

“It’s important to know what your needs are,” says Wang. “We want security, we want safety, we want protection, and we want this money to last forever. There are different strategies and products that we can look into based on your needs.”

Don’t: Let all the money sit idle.

“The biggest mistake is that they leave the money in the bank account and they don’t do anything about it,” says Wang.

His general rule of thumb is to do something with the money right away.

“You can’t just sit in cash. You need to meet with a financial advisor to talk about your goals,” he adds. “If you put in the market, you make more money on returns. But if you decide to leave the money in the bank, you’ll earn nothing.”

Do: Spend money on memorable experiences.

The newest iPhone or designer outfit might suddenly seem in your budget with your new-found cash, but these material splurges provide little benefit for your long-term financial and personal success.

Dr. Thomas Gilovich, a psychology professor at Cornell University who has been studying the question of money and happiness for over two decades, released a 20-year study that found experience buys you more happiness than things.

So, if you can’t shake the need to pamper yourself after a successful home sale, spend a small amount of your home sale proceeds on an experience that will provide long-term satisfaction. Attend art exhibits, try new activities, learn a new skill, or travel to a new place.

Don’t: Put all of your cash into Robo-advisors.

Robo-advisors provide digital financial advice through an automated platform based on mathematics and algorithms. The first Robo-advisor, Betterment, launched in 2008 and since then, the industry has grown tremendously. Now, there are hundreds of Robo-advisors — each providing different tools, products, and algorithms for investment management and financial advice.

“Robo-advisors like Robinhood provide quick and easy investing options but they aren’t smart for large sums of money,” says Wang. “If you have a few thousand dollars for that, it’s OK. But if we’re talking hundreds of thousands of dollars, you need a human advisor.”

Be smart with your home sale proceeds, and enjoy the rewards!

Receiving a big sum of money all at once can be exciting… but also scary. You need to make sure you spend and invest it wisely, so you don’t wake up one day and realize it’s gone.

Take the advice of industry professionals before you make any major decisions with the proceeds of your home sale. Make a plan for how you’ll distribute your profit right away. Although you may want to roll around in your cash, don’t sit on it for too long.

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