Everyone likes to imagine what they’d do if they came into a lump sum of cash. Whether you receive $1,000 from a work bonus, tax refund or lotto scratch off, you need a plan for the money. Otherwise, there’s a good chance it will go to waste. Here are some smart ways to spend the cash.
Forty-five percent of Americans have no money saved. This goes against everything financial experts preach about. Normally, you want to have at least three to six months of living expenses stashed in your bank account. Although $1,000 won’t fully cover most emergencies, it does lay a good foundation for you to build upon. From there, you can create a budget and look for ways to reduce your spending, so you save more.
Pay off credit card debt
Many people are good at racking up credit card debt, but have a hard time paying it off. If you find yourself in a bind, use your $1,000 to start digging your way out. The first thing you need to do is choose a repayment strategy. With the snowball method, you’ll pay off debt from the smallest to largest balance. People rave about this approach because watching your debt disappear gives you the motivation needed to keep going. Another option is to use the avalanche method. The key difference is you’ll pay off debt starting with the highest interest rate. It may take longer to see results, but it is the cheapest way to get out of the hole.
Take a vacation
Too many workers are letting their hard-earned vacation days go to waste. In fact, the average employee only uses 54% of their paid time off. You only have one life to live so treat yourself to a nice vacation. Traveling comes with a host of benefits including reduced stress, enhanced creativity, lower risk of heart attack and increased happiness. Do a quick search for the best vacations under $1,000, find one that tickles your fancy and go.
Hire a personal trainer
When you look good, you feel good and it overlaps into other areas of your life. Unfortunately, around 90% of American women are unhappy with their bodies. Hiring a personal trainer can help you get in shape and boost your self-esteem. They’ll help you set realistic fitness goals and create a personalized workout to fit your needs. Plus, your trainer can teach you good form, so you get the most out of your workouts and reduce your risk of injury.
Buy life insurance
If your spouse, children or aging parents depend on you financially, you need to have life insurance. This will protect them if you pass away. The money can be used to cover your burial expenses, pay monthly bills, eliminate debt or fund your child’s college education. Get it while you’re still young and healthy because your premiums will be cheaper. When deciding how much life insurance you need, a good rule of thumb is to get a policy that’s at least 10 times your income.
Make an extra mortgage payment
Although most people have a 30-year mortgage, there are no rules that state you can’t pay it off faster. Anytime you come into some extra cash, apply it towards your principal. By doing so, you’ll shave years off your loan and pay less interest.
Build your nest egg
There’s no such thing as saving too much for retirement. It’s better to have it and not need it, than to need it and not have it. With that being said, using the $1,000 to open a Roth IRA is a smart move. Your income will be tax-free in retirement and you can withdraw your contributions without penalty at any time. Start early so your money has more time to grow. For 2020, the contribution limit is $6,000 ($7,000 if you’re age 50 or older).