Say $1,000 unexpectedly landed in your lap. How would you spend it?
Perhaps you'd hit the casino. Take your friends to the swankiest restaurant in town. Or splurge on those designer shoes you've been eyeing. But if the money's here today and gone tomorrow, you might take home those hot, new shoes with a side of buyer's remorse.
As Bankrate Chief Financial Analyst Greg McBride puts it, "Going on a shopping spree is probably not a real good use of the money, particularly if you have other financial fish to fry."
So we asked personal finance experts what would be a smart way to spend a $1,000 windfall or maybe an extra grand sitting in your savings account. They came up with 10 suggestions that might turn that $1,000 into a couple thousand and help secure your financial future.
1. Meet your employer's retirement match. If you have a retirement account that offers a company match, the smartest way to use some or all of your $1,000 is to meet that match -- assuming you're not already doing so. "That's No. 1 because with the match, you're getting a return that you would not get in the market. You're doubling your savings," says Carrie Schwab-Pomerantz, a certified financial planner and president of Charles Schwab Foundation.
Upping your contribution might mean saying goodbye to $1,000 of your take-home pay now, but just think about how you can roll in that grand -- plus the free money it earns you -- in retirement.
2. Open an individual retirement account or 401(k). If your employer doesn't offer the aforementioned company match, starting a Roth IRA or 401(k) is a judicious use of the $1,000. John Laitner, director of the University of Michigan Retirement Research Center, says many people plan for retirement too late in their career, and they lose the benefit of time. "Money put into a retirement account early in adulthood ... can expand with compound interest year after year," he says.
While traditional and Roth 401(k)s and IRAs will all jump-start retirement savings, McBride recommends a Roth IRA because "whatever growth you see in that investment going forward is yours to keep." Unlike with a traditional IRA, you won't pay taxes on the money when you withdraw it in retirement. You also don't have to take minimum required distributions once you reach age 70 1/2 like you would with a traditional IRA.
3. Pay off credit card debt. If you come across $1,000, one of the best ways to spend it is to pay off debt, specifically credit card debt.
Many personal finance experts advise lining up your credit cards by interest rate and using the $1,000 to tackle the balance with the highest APR first. But if obliterating outstanding bills provides emotional satisfaction, Dave Ramsey, radio host of "The Dave Ramsey Show" and personal finance author, recommends his "debt snowball" plan.
"List your debts in order of smallest payoff balance to largest," Ramsey wrote in an email interview. "Every dollar you can find from your budget goes toward the smallest debt until it disappears. A thousand dollars can eliminate that nagging $52 medical bill or that $122 cellphone bill from eight months ago." This strategy to start small builds a debt-payoff momentum that snowballs to bigger debts.
[See: 10 Easy Ways to Pay Off Debt.]
4. Bulk up your emergency savings fund. Your car transmission could conk out. A family member could fall ill. You could lose your job tomorrow.
Too many people don't plan for life's unpleasant surprises, says Mint.com spokeswoman Holly Perez, a U.S. News My Money blogger. If you don't have an emergency fund, or it could use some padding, now's your chance. "Put aside three to six months of living expenses to prepare for the unexpected," Perez advises.
5. Pay off student loans. There's a reason student loan debt comes after credit card debt on this list: Many student loans allow deferment or forbearance if you run into financial trouble and can't make payments -- options other creditors do not offer.
Student loan interest rates are also lower than credit card rates. And as McBride explains, you get a greater return by paying off higher interest debt. "Paying off a credit card balance at 18 percent interest is like earning a risk-free return of 18 percent on your money," he says.
But if you razed your consumer debt, spending the $1,000 to pay for your degree would be a wise move. "When paying down student loan debt, apply the prepayment to the loan with the highest interest rate," recommends Mark Kantrowitz, publisher of edvisors.com, a resource on higher education costs. "This will save you the most money over the life of the loan."
6. Invest in the market. Once you're saving for retirement, have a cushy emergency fund and paid off debt, it's safe to take that grand and invest it. But don't use the money to buy stocks, Schwab-Pomerantz warns. "Investing in individual stocks is not prudent for a new investor because you're basically putting your eggs all in one basket," she says.
So what should you invest in? Schwab-Pomerantz's suggestion: mutual funds.
"A mutual fund provides the diversification that you need to ensure your money will grow over the long term," she says.
Mutual funds, index funds and exchange-traded funds tend to be tax-efficient and low-cost. But compare their annual expenses since the fees vary. Some funds also require minimum investment contributions, so it's a good idea to shop around or consult a financial advisor to devise an investing plan.
[Read: The Best Ways to Invest $5,000.]
7. Take an educational course. Are you lacking skills you could apply in your job? Perhaps it would be helpful to know computer coding or Spanish so you could communicate with more clients. An educational course might be what you need to impress your boss and get that raise you've been pining for.
But you should weigh the amount of that potential salary boost before rushing to register for Español 101. "If spending the $1,000 on that course increases your income by over $1,000, then it's clearly worthwhile," Kantrowitz says. He throws out another factor to consider: "Will it make you more marketable so you can get a job that pays better?"
8. Attend a professional conference. Here's another example where a $1,000 investment could pay big dividends on your career. Miriam Salpeter, founder of the career consulting firm Keppie Careers and a U.S. News Careers blogger, recommends attending a professional conference. "This could easily eat up the entire $1,000 between paying for a conference and covering travel needs," she says. "However, it can really be worth meeting people in your field from other parts of the country and learning from thought leaders in your industry." Besides catching up on industry trends, you might meet people looking to fill positions that pay more than your current job.
9. Make home improvements. You might be putting off repairs because you can live with that leaky faucet or the crack in the ceiling doesn't look that bad. But spending $1,000 on cheap fixes now could prevent you from shelling out thousands of dollars later.
For example, if you detect moisture on the ceiling (you might see a gray or yellow stain) or walls feel wet, you might have an interior leak, says home improvement expert Eric Stromer, co-host of the "Home Wizards" radio show. "Anytime you sense water leaking in the interior of the house -- whether it be in a bathroom or under a kitchen sink -- it's just a time bomb waiting to happen," Stromer says. The $1,000 will cover a drywall replacement and leak repair, but it won't cover what you'll pay in the aftermath of a flood. Stromer adds it's also a smart idea to hire a plumber to inspect your house and catch any disasters in the making.
10. Take a vacation. Farnoosh Torabi, author of "When She Makes More," says go ahead, splurge on a trip. "A vacation is money well spent, as the memories you make can last a lifetime," she says.
Ultimately, if you're being smart with this money by distributing it between retirement, savings and debt, no one will berate you for a tiny indulgence.
"If somebody came to $1,000 and that's the kind of money they haven't seen in a long time, I would say take a small portion and do something fun," Schwab-Pomerantz says. "It's unrealistic for us to not have a little bit of fun in our lives."
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