7 smart things to do with $1,000

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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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  • R G

    false; I am debt free. My SS is low. (too not to); Sharing my experiences you can learn the hard way not my problem.