10 Smart Ways to Invest $1,000
$1000 can turn out to be a lot more with smart investing. Here are 10 smarter ways to spend that extra grand than on a shopping splurge.
1. Reduce debt
Though many people have whittled their debt over the past five years – or have had their access to credit significantly limited – old habits are creeping back into play.
Consumer debt rose 1.1% to $11.28 trillion in the third quarter of 2013, marking the biggest quarterly jump since the first three months of 2008. If you're one of those who has become saddled with debt, take action - make a big paydown your top designation for your latest windfall and stop paying high interest rates (credit card interest rates are averaging around 13%).
2. Give a helping hand
Be a lender, not a borrower. Consider investing in peer-to-peer lending and providing a handout. You may reap a reward in return. Other investors are signing up for Lending Club and other peer-to-peer opportunities; Lending Club recently announced that its platform had originated more than $3 billion in personal loans. When you come across unexpected or extra cash, this passive investment gives you another way to diversify your investment portfolio, and you’ll likely see a higher return on your investment compared to stocks and bonds. If you haven’t invested much elsewhere (like, ahem, a 401k), then skip this idea and see our ideas below.
3. Turn to an index fund
Another place to park your newfound cash if you need to diversify further: index funds. With these funds, you don’t have to let exorbitant fees eat away at your returns. Increasingly considered to be more beneficial than mutual funds by the general investor community because they have usually have lower fees, index funds involve a certain set of securities (such as the S&P 500).
4. Open a Roth IRA
Join the bandwagon as Roth IRAs have gained in popularity over traditional IRAs, according to data by the Employee Benefit Research Institute. A Roth IRA is a retirement account that can provide tax-free withdrawals if certain conditions are met. When you pull money out, no tax is due on the money you originally invested, and most important, if you follow all the rules, no tax is due on any income and growth over the years. To learn more about Roths and find out if you're eligible to open an account, go to the IRS website.
5. Invest in yourself.
Spend the $1,000 to attend seminars or take classes that will enhance your professional development. Either show your boss that you're ready to move ahead, or set yourself up for a better job, perhaps even your own business. Who knows, this $1,000 could be the start of a completely new career.
6. Cover the what-ifs
Chances are you don’t have an emergency fund. Close to half (41%) of us do not, and not all of those who do have savings set aside for the unexpected have enough in there, as CreditDonkey has found via surveys. Ideally, you want six months’ worth of your income easily accessible if you lose your job or something prevents you or your spouse from working. After all, while we believe credit cards are convenient and useful, you don’t want to have to lean on them if you don’t know when your next paycheck will come in. Use the thousand dollars to beef up your emergency savings or start an account that you should contribute to at least once a month.
7. Pursue your passion
If you have a hobby that has the potential to make money, take the $1,000 and launch a home-based business. Capitalize on your expertise. Bill yourself as a coach or consultant. If you're uber-organized, a multitasker who loves the fine details, sell yourself as a wedding or special events planner. There's a business to be had walking dogs, watering plants, and house-sitting, for example. You can't beat making extra money doing something you love.
Today's low interest rates on mortgages aren't going to stay in the basement forever. They can go up, and that's likely to happen sooner, rather than later. If you've been sitting on the fence about refinancing and have a high interest mortgage, $1,000 could help pay refinancing costs. A lower mortgage means more money in your pocket each month. Instead of spending the extra, put it toward savings or paying debt.
9. Contribute to your health savings account
If you have a health insurance policy that comes with a qualifying health savings account, take full advantage of it and fully fund it. Most contributions are tax-deductible, and withdrawals to pay for qualifying medical expenses at any time are tax-free. There's another plus with a health savings account. If you have money remaining at year-end, you don't lose it, as you would with a flexible spending account. Your money rolls over and continues to grow. After age 65, you can use money in the account for non-medical purposes.
10. Invest in your children
Create or add to a college savings fund, such as a 529 plan, and use SavingForCollege.com as way to easily compare plans. Or use the $1,000 for a year’s worth of tuition to specialty classes or summer camp. You’ll be setting up your young ones as college-worthy students someday. Another idea is using the dough toward an educational family trip, like to Washington, D.C., Colonial Williamsburg, or a national park. You'll all learn something new about the world around you as well as each other.
The point of this list is to give you some ideas, and take you down from the high you may have felt when the check first came in. It’s always nice to splurge – and for that reason, you may want to take $100 out of the total for a nice dinner or a killer outfit – but a spare $1,000 is best spent on something that will last much longer, like your savings.