If you had some extra $1,000, how would you spend it? Once in a while you may have such extra cash then you start wondering where or how to use it, and at times you may end up wasting it. Here are 4 smart things you can do with this cash.
1. You Can Pay Out Any High-interest Debt You Are Having
Paying high-interest debt using this amount can even be better that investing it. This is because the return on your investment may not be able to offset the interest you are paying on the debt. For example, according to a credit card payoff calculator, if you owe $1,000 in credit card at 18 percent interest, you will be required to make a minimum payment of $25 per month, and it will take you five years to pay it off at a total cost of $1,500.
2. You Can Make Direct Investment In Shares Of Stock
If you don’t have any high-interest debt, you can consider making direct investment in shares of stock. You can choose companies that offer dividend reinvestment plans. Such plans are advantageous since your dividends will be automatically reinvested for you into additional shares. Another advantage of dividend reinvestment plans is that they give small investors access to stocks without having to have a brokerage account, so the hassle of opening a brokerage account and paying commissions is eliminated.
3. You Can Use This Cash To Help Your Kids Learn About Money And Markets
Children need to learn about money and markets at an early age so that when they become adults, they will have some financial management skills. Instead of spending this money on a new tablet or smartphone, you can open an UTMA account. This is a type of custodial account that allows you to transfer money to minors. With this account, you can buy or sell stocks, mutual funds, etc, and when your child comes of age, you can involve him/her too. By so doing, you can teach your child valuable investing lessons. It also helps to get your child excited about investing.
4. You Can Contribute This Money To Ira Or A 401(k)
Many people find it difficult to save a windfall and they end up spending it without plan. Contributing to a retirement plan will not only set you up for increased earnings for the years to come, but will also help you in getting tax deductions that will lower your tax liability in the current year or the year that follows. Some employers also match your 401(k) contributions, this means you can earn up to 100 percent if your employer matches your contribution completely.