Whether it's from a recent bonus, a gift, or an increase in your earnings, if you find yourself with an extra lump sum of cash, you might be wondering where to put it.
The good news is that there are many ways to put $1,000 to work for you. Here are five excellent ways to use the money to boost your budget.
1. Pay off credit card debt
Credit card debt has soared over the past couple of years, partially due to inflation, which has caused the price of nearly everything to rise. Americans now owe a record $1.1 trillion in credit card debt, with the average American owing about $6,501.
Suppose you have $1,000 in credit card debt and pay the average annual percentage rate (APR) of 24.6%. If you make a minimum monthly payment of $50, it will take you two years to pay off your balance, and you'll pay about $290 in interest.
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But putting that $1,000 toward your credit card balance would help you quickly pay off the debt and save you hundreds of dollars.
2. Invest in the stock market
Using $1,000 to buy stocks may not seem like enough money to invest, but it could grow larger than you expect, given enough time.
Let's assume you put $1,000 into a brokerage account and buy a low-cost index fund that earns the historic average annual rate of return of 10%. In 15 years, that $1,000 could be worth about $4,177. That's not a life-changing sum, but it's still more than four times the original amount!
3. Start an emergency fund
About 44% of American households don't have enough money to cover a $1,000 unexpected expense. Putting your $1,000 into a high-yield savings account is a smart move if you're in the same boat.
Emergency funds can help you cover the cost of a house or car repair, keeping you from reaching for a credit card. And with some savings accounts paying 5% annual interest right now, your $1,000 could turn into $1,051.16 after 12 months.
4. Put it in a retirement plan
If your employer offers a 401(k) plan, adding an extra $1,000 could do a lot of good for your retirement. And that money will go even further if your company has a matching plan.
Let's assume your employer matches 50% of your contributions, up to 5% of your salary. If you haven't reached the contribution limit yet, your employer would match your $1,000 contribution with a $500 contribution to your 401(k), giving you $1,500.
If you already had $10,000 in your retirement plan, added the $1,500 contribution, and earned the historic annual rate of return of 10%, you'll have $77,366 after 20 years. In contrast, if you didn't add the $1,500, you would have $67,275 -- more than $10,000 less!
5. Open a CD
Another option for your money is to put it into a certificate of deposit (CD). CD rates are favorable right now, with many paying 5% or higher.
CDs have guaranteed rates of return as long as you don't withdraw money early, and they are FDIC insured. This makes them a great place for investors looking for a low-risk way to grow their money. You could put your $1,000 into a 12-month CD paying 5% and earn about $50 interest, helping your cash outpace inflation's effects.
An extra $1,000 can do a lot of good for your finances if you know where to put it. The good news is that whether you're paying off debt, investing your money, or starting an emergency fund, there's really no wrong way to use your extra cash.
