7 smart things to do with $1,000

man on grass with cash

You’ve just received an extra $1,000 from a bonus, tax refund or other windfall. What do you with the money?

The temptation, of course, is to blow it — it’s "free" money, after all — on something a little crazy, maybe a trip or a new toy of one kind or another.

But there are better choices. Here are 7 smart ways to put that cash to work that will have lasting benefits — and a fair dose of immediate satisfaction.

Smart move 1. Pay down credit card debt.

No, it’s not as fun as a weekend at a resort, but if you crave long-term financial freedom, paying down high-interest credit cards is one of the best things you can do for yourself. You'll throw away less money on interest charges on every bill from here on out.

The average credit card debt for households carrying balances month to month is $15,112. With the interest rates on credit cards that charge a variable rate now at 15.36%, chopping $1,000 off that debt can save you $154 this year alone.

Our calculators can help you devise a plan for paying off one credit card or a bunch of credit cards.

In the end, being debt-free will make you feel better than any new toy.

Smart move 2. Build up your emergency fund.

Even if you've got no credit card debt, you're one step away from disaster if you don't have an emergency fund.

Depending on the security of your job, financial planners say you should have three to six months of living expenses put away in an easily accessible, government-insured savings or money market bank account.

This is your basic financial cushion, there in case you lose your job or face some other unexpected crisis.

If you don’t have an emergency fund, or enough of one, stick your $1,000 in one of those bank accounts. Your immediate reward is you’ll sleep better at night knowing you’re more secure against the inevitable ups and downs of life.

Smart move 3. Put it in an IRA.

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If you don’t have an IRA, take that $1,000 and start one. Do it today. If you have one, consider making a one-time additional contribution.

Studies show most Americans have nowhere near the savings they should have as they approach retirement. If you’re part of that majority, then this is a chance to start catching up.

Putting some cash away early can yield huge benefits down the road. You’re delaying gratification now, but you’ll thank yourself when you reach your golden years.

Individual Retirement Accounts also provide one of the best tax breaks available to middle-income Americans. By allowing your savings to grow tax-free, they can help you build real wealth.

Let's say the $1,000 you invest in an IRA grows at an average annual rate of 6.5% over the next 25 years. You’ll wind up with more than $5,000.

Your best bet is probably a Roth IRA. If you run into money problems 10 or 15 years down the road, you can withdraw your contributions without paying penalties or taxes, and there are no penalties or taxes on any withdrawals once you reach 59 1/2 years old.

Smart move 4. Go back to school.

If your financial house is in order, how about investing in yourself?

Taking some of that $1,000 and paying for a night or weekend class could be a smart investment in your future. It can be a chance to upgrade your professional credentials or even sample other career options.

In today’s fast-changing work environment, the required skills are constantly changing. Patching a hole in your own skill set can be a way to leverage that $1,000 into a raise, promotion or better job down the road.

Most community colleges and universities have classes scheduled for working adults. If you’re worried about the pressure of tests and grades, you can often audit a course, which means you won’t have to worry about your grade.

Smart move 5. Buy a dividend-paying stock.

Most of the traditional savings options for a spare $1,000, such as CDs or money market funds, are paying almost nothing in interest, and there’s little prospect that will change soon.

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But there is one place where you still have a good chance of getting a decent return on your investment: blue-chip, dividend-paying stocks.

There are well-established companies paying annual dividends of more than 4%. AT&T, for example, has been one of the better dividend-paying stocks for five years, and its current dividend of about 4.98% is one of the best.

There’s always risk with stocks, and they should be viewed as a long-term investment. But over time, financial planners say you can expect an average annual return of 8% or more when dividends are added to gains in the share price of solid blue-chip companies.

To buy your shares as cheaply as possible, go through a discount broker or use a direct stock purchase program, which many companies have. Just search "(Company Name) direct stock purchase plan" to see if the shares you want to buy are available through such a program.

Smart move 6. Buy a bike.

With this choice, you finally get to buy something shiny and new, while improving your life in ways that can last.

If your commute isn’t too long, riding that bike to work will save you money on gas and car repairs while improving your physical fitness.

Studies have shown that productivity is related to fitness and health. Even if you can’t use it for commuting, bicycling is a good, low-impact cardio workout. Buy one, get all the gear and head out for a healthy ride.

If you’re not the biking type, then consider taking part of that $1,000 and spending it on a gym membership or a fitness class. Many gyms will let you sample a class for free or for a small fee.

However, you do it, an investment in your own health is likely to pay big rewards: You’ll feel better, be more productive and maybe even live longer to boot.

Smart move 7. Fix up your home.

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This is another investment that comes with more than one reward. Many home improvements pay for themselves over time, but they can also make you feel better right now.

Improvements that boost your home's energy efficiency, such as replacing appliances, installing new windows or blowing additional insulation into your attic, will result in lower utility bills. Some upgrades qualify for tax credits, making them even a better deal.

It may take a few years, but you’ll get your money back. Long before that, however, you’ll have enjoyed a more comfortable home.

Our 10 smart, low-cost home improvements can help you get the most out of your $1,000.

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  • No1Knows

    Smart move 1. Pay down credit card debt - Give More money to credit card companies
    Smart move 2. Build up your emergency fund - Give more money to the banks
    Smart move 3. Put it in an IRA. - Give to money to the goverment
    Smart move 4. Buy a dividend-paying stock - Give more money to american corporate
    Smart move 5. Take a night class - Give more money to the useless educational system.

  • Dan

    Buy a gun to defend yourself in the impending zombie apocalypse.

  • Jane Richards

    In response to Comment #1: 1.Probably doesn't have any savings 2. probably doesn't have a job 3. probably is disillusioned by their own choices 4. probably will end up having the rest of us pay for their living expenses in retirement.

  • Scott Ewing

    Help start a fund for No1knows to be put in a home for the mentally disabled.

  • SUSAN

    If you pay down a credit card, you are saving YOURSELF money by not giving interest (more of your hard earned money) to the credit company. Depending on what interest rate you are paying, you could save yourself quite a bit of interest as well as possible monthly service charges.

  • Lee Robinson

    "GIVE" THEM MONEY? You are NOT "GIVING" them any money! You OWE the credit card companies, and you will "earn" money by NOT paying more, but LESS interest! Buying stocks gives you part ownership in the company involved! NONE of your comment items are legitimate! Wake up and use your intelligence! Lee

  • Lauren

    No1Knows - if you are going to leave a comment, can you at least make it an educated one? If you don't want your money going to credit card companies, then don't buy useless things you don't really need in the first place. Giving more money to banks? It's YOUR money - a bank just holds it, and pays you interest on it. Stop complaining. IRA contributions do not go to the government - and you save tax dollars so you actually take money away from the government. Also you should be thankful that we have so many options for education in this country instead of calling it useless. It sounds like you NEED an education. That's where you should invest your $1,000.

  • TJ

    You wouldnt be giving money to a credit card company, since it was theirs to begin with! Not only are you spending money you dont have, but you are also being charged interest on it. PAY YOUR DEBT OFF and start SAVING and stop SPENDING. Its not that hard to understand.

  • John Pinter

    Dear No1knows: in your case, the obvious choice for where to apply the $1,000 would be psychiatric counseling.

  • http://comcast shelley

    Good Sound Advise!!

  • Sgt. Jester

    All those are are really good ideas. Pay off the smallest credit card first, it gives you confidence that you can do it. Ignore No1Knows, because apparently he doesn't know.

  • http://interest.com rosie

    thanks for the good ideas. i have an ira i guess i could put more money there.

  • marknorway

    But Dan, what good would a gun do in the "impending zombie apocalypse"? I mean, isn't a zombie already dead? I know, in Call of Duty: World at War, a gun will kill a zombie, but you're talking about the REAL zombie apocalypse, aren't you? LOL

  • Its Friday Somewhere

    No1Knows is just adding a bit of humor to this serious conversation. But, what we all really need to do with this windfall is to send it to the helpless, starving children of the world...with just a small investment, say $1000, you can feed the world. Then, just claim chapter 7 and no more debt -that's the true reality here!

  • Reality Check

    No1Knows probaly lives in California where we have the highest population per capita on government assistance. Yet they are "down with the man" in their attitude. Moved here from Colorado and I am shocked at the attitude of entitlement and no responsibility for self

  • mr bean

    no1knows has hired me to tell all of you that you're all wrong and he is 100% correct! I only charged him 1000.00! lol.

  • Katie

    "Number1knows" has a right to his opinion without being blasted by everyone as an idiot..

    That is bullying and peer pressure to conform to YOUR standards..

    Now we see where the children get the bullying.

    Being an individual is what the USA is all about. We usually call it FREEDOM.

    Do not bother to try and insult ME now, I could not give a rip what YOU think.

  • Elisabeth

    Many people make it so much easier to see our own stinking thinking. Thanks to No1knows for much needed insight.

  • Lauren

    Katie, of course everyone has the right to express their own opinion. But to make claims that are completely false is another matter entirely. I'm also incredibly frustrated by the people with No1Knows's attitude - that they are not responsible for their own finances and can rack up all kinds of credit card debt and act like it's corporate America's fault. Not cool. If you can't afford it, don't buy it.

  • Maggie Jones

    I would have to say that "No1knows" is either a person born with a silverspoon in their mouth and doesn't worry about money or is a teen that knows more than anyone else and is against establishment. That person needs to grow up and learn how life really works....

  • Really

    I don't know how i got to this discussion/comments etc. I never respond to these comments cause i never spend my time reading what others think unless i know it is from a wise source. but i read some of these and have one thing to say. r u serious. all this stuff is stuff we already know. why r u commenting on it? who cares what know1 or whatever their name is thinks? why r u people commenting on this article in the first place? what a waste of time!!! Don't bother commenting on what i just wrote. i'll never come back to read what u wrote. nor did know1 whatever their name is.

  • free america

    To Katie, wow so your saying #1knows has the freedom to make a statement yes OTHERS do not have that freedom? Sounds like a double standard. I thought we were still in America where we have freedom of speech but obviously you don't totally agree with this. I'm amazed how people are giving up these freedoms for a set of people that want to be taken care of and not have to grow up and take responsibility for there own actions.

  • http://www.interest.com/savings/news/7-smart-things-to-do-with-1000-in-cash/# Michael

    So Katie, yes #1knows has a right to his opinion and by the same respect WE do to. Yes you may want to start a petition drive to save #1knows from having to defend his position so that his/her feelings aren't hurt. That is the problem anymore with people they don't want to take responsibility for their actions or comments. Welcome to life and living in America, we still have some freedoms left but with comments like yours it may not be long before that too is gone.

  • kat

    Y'all are giving him/her WAY more attention than s/he deserves. 'Nuff said.

  • Marsha

    Love item 3...how many readers would LOVE to find an IRA, or anything else FDIC insured for that matter, that actually pays an average annual rate of 6.5%? Perhaps the author might like to discuss a realistic IRA return next time.

  • Cyn

    All smart ideas to start to pay yourself instead of debt owed. Would like to add my own touch. Say you owe $10,000 in cc debt to 5 cc companies and the minimum is $50 per card. You have $500 per month to pay off debt and pay each $100. Instead of that, pay $50 to 4 of them and $100 to just one. When the first card is paid off, then pay $150 to the next. Third card gets $200. Repeat cycle and each card will be paid off faster. You will be credit card free in three years, and take your $500 per month and pay yourself... Build retirement, take vacation, whatever... Kiss, kiss... Keep it simple stupid!!!

  • Miguel Torres

    I agree with all 7 suggestions. In addition, if your financial situation is healthy AND you feel like 'giving': you can 8) open a College Fund Account for your children or 9) donate the money to charity (both options will give you a tax deduction). Oh, wait....Lee says that giving your money to your children is like allowance, flushing it down the toilet. Second, becuase Lee still rents, a tax deduction will not serve he/she any purpose. Lee: you need to understand finances a little more.

  • http://comcast.net jonathan josefek

    #4 interest paying stock- I OWN PITTNEY BOWES,symbol PBI, it is yeilding over 13%, paid quarterly at 37.5 cents per share, and thet do have a dividend reinvestment plan.(which further compounds growth)
    Their earnings do suggest that they are capable of maintaining this dividend.

  • P’s Turn

    Hey, No1Knows (including You!), can you give me the $1K, if you don't 1) want to PAY BACK the credit card companies that you have already 'borrowed' from, 2) stash it away in an emergency fund where it can EARN INTEREST, 3) same deal, INTEREST, 4) earn INTEREST, 5) INVEST IN YOURSELF!
    Damn, why would you not want to invest in yourself or your own country's stability???
    I guess you'd rather just blow it all in Vegas or throw a blowout party for your 'friends!'

  • Cat Ng

    It's important to have fun with your money, but also to be smart with it. Don't waste it. Make sacrifices when needed.

    Life will always have the makers and the takers. The makers will usually work hard and live reasonably within their means. The takers will usually not put the effort in and blame others for their "unfair bad luck", then want the makers to pay for them in the name of "fairness". The simple truth is everyone has a choice and if you choose to live below your means and save you will save. Period.

    Most will say they can't live below their means because ..(insert excuse here). How many of these people that simply can't save anything have I phones, computers, WIFI, new cars, big screen TV's with cable, eat out all the time, etc.

    Of course they look at me like I'm crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from 4AutoInsuranceQuote. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).

    We make the beds we lie in. Be responsible for yourself.