It's not every day that $1,000 magically comes your way. But if you've recently gotten a bonus or tax refund, you might be sitting on that much cash for the first time in a long time. And if that's the case, you'll want to use that money wisely. Here's how.
1. Start or pad your emergency fund
We all face our share of financial emergencies, whether it's the car breaking down or the home heating system going kaput. But the majority of Americans can't handle an unplanned expense, and only 39% have the cash on hand to cover a $1,000 surprise. If your savings can't hold up in the face of an emergency, you'll need to do better, and that means putting whatever spare cash you have directly into the bank. Incidentally, your emergency fund should contain enough money to cover three to six months' worth of living expenses, and while $1,000 probably won't get you there, it'll still make a sizable dent.
2. Boost your retirement savings
It's estimated that nearly half of U.S. households have no money set aside for retirement. And that's a problem because Social Security alone is not enough for retirees to live off. If you're an older worker, it's especially crucial that you take steps now to make up for lost time, which means that if you have $1,000 at your disposal, you'd be wise to stick it into your IRA or 401(k). Not only will doing so help ensure that you're able to pay the bills as a senior, but it'll give you an immediate tax break to boot (assuming you contribute to a traditional IRA or 401(k)—Roth accounts offer other tax benefits, but they're not immediate).
3. Pay off costly credit card debt
In case you didn't hear, U.S. credit card debt hit an all-time high late last year. If you're carrying a balance and come across the money to pay off some or all of that debt, you'd be smart to go that route. That's because credit card interest can compound against you faster than you can say "help," so the sooner you chip away at that debt, the less money you'll end up forking over to credit card companies.
4. Establish a college fund
Have kids? Chances are, they'll eventually want to go to college, and if you don't start saving for that major expense, your children could end up with a sizable load of debt on their hands. If you have $1,000 to spare, why not use it to open a 529 plan? Though you won't get a tax break up front for contributing to such a plan, any gains on your investments are yours to keep free and clear of taxes, provided you use the money for qualified higher education purposes. An estimated 44% of parents today feel guilty that they didn't save enough money for their kids' college, so if you have some spare cash on hand, you can avoid becoming a part of that statistic.
5. Buy insurance
Whether its life insurance, long-term care insurance, or a better health plan, the one thing most likely standing between you and the coverage you need is money. So if you're sitting on $1,000, consider using it to buy yourself some added peace of mind. In the case of life insurance, you'll rest easy knowing your loved ones will be protected financially should something happen to you. Meanwhile, long-term care and superior medical insurance could wind up saving you loads of money on health-related issues that come to be.
6. Give it away
Many of us would be more charitable if we only had the money. But if you suddenly get a windfall and your immediate financial needs are being met, you might consider giving that cash to those less fortunate. Doing so is not just altruistic but beneficial from a tax perspective. That's because money donated to a registered charity is deductible on your return. And if you wind up on the fence with regard to itemizing your 2018 taxes, which will likely be the case for many folks who have historically gone this route, that extra $1,000 donation could wind up making a huge difference.
Natural as it may be to want to spend your newfound $1,000 on something fun, resist the urge to blow that cash irresponsibly. A sum that large probably won't land in your lap for quite some time, so don't miss the opportunity to make the most of it.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917