5 Smart Ways to Invest $1,000
January 22, 2016 : Laura Adams – Guest Contributor
There’s a lot you can do with $1,000. No matter if you accumulate that extra grand because you’re a saver, receive a tax refund or win some unexpected cash, consider these five smart ways to turn a thousand into a few thousand and create more financial security.
1. Build Your Emergency Fund
If you’ve ever had to use a credit card to cover an unexpected expense, you likely need to start or build up your emergency fund. To stay ahead of life’s unpleasant financial surprises, most people should maintain a minimum of three to six months’ worth of living expenses in a savings account.
Adding $1,000 to your cash reserve can give you peace of mind and financial protection against the unexpected, such as a broken-down car, a high medical bill or lost income.
2. Fund Your Retirement Account
If you have a retirement account at work, like a 401k or 403b, consider increasing your elective payroll contributions. With a slightly smaller paycheck, you can then use the $1,000 to cover any shortfalls in your budget.
If you don’t have a workplace retirement plan, open up a traditional or Roth IRA. Investing as much as you can in qualified retirement accounts gives you both tax advantages and growth that compounds year after year.
3. Pay Off High Interest Debt
If you have expensive debt like credit cards or payday loans, use $1,000 to pay down the account with the highest interest rate. When you pay off a credit card that charges 18%, that’s just like earning 18% on an investment after taxes—pretty impressive!
Even if you can’t pay off all your debt, cutting your balance reduces the amount of interest you have to pay. You can use your interest savings to help pay down your next highest-rate debt.
4. Fund a 529 Plan for Education Savings
If you need money for your own education or that of a child, open up and contribute $1,000 to a 529 savings plan. The funds grow tax-free if you spend them on qualified education expenses such as tuition, room and board, books, fees and required equipment.
States and eligible institutions—like colleges, universities or vocational schools—that participate in federal student aid programs, offer 529 plans. Although you can choose any state’s 529, you may be eligible for additional benefits if you choose a plan sponsored by your home state.
5. Improve Your Career Prospects
Education doesn’t end when you receive a diploma, so consider taking classes to improve your skills. That could be public speaking, technical training, writing or a second language. Ask a boss or mentor what skills would help advance your career the most.
Another way to invest extra cash in your future earning potential is to hire a professional to update your resume. You never know when a new opportunity could arise.
While it might be tempting to spend a grand on a shopping spree or a vacation, using it to improve your finances with one or a combination of these ideas will pay huge dividends. Not only will you have more income and savings to spend in the future, you’ll be more prepared to tackle any financial challenge that comes your way.