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.

hub-channel-ira

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.

  • http://interest.com zittle1

    I get what you're saying, No1Knows.....but is putting it somewhere where you realize some future benefit better than buying a new TV that will be obsolete in a few years (give it to the corporations) or the traditional stuffing your mattress and risking losing all your savings to theft or natural disaster? Is there a better idea?

  • 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

  • Burgess Gardner

    Do not charge any amount on your credit card that you cannot pay off in full when the statement comes.

  • 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.

  • banker bob

    Smart move 1. Pay down credit card debt - Give More money to credit card companies IF YOU DIDN"T INCUR THE DEBT YOU HAVE NOTHING TO PAY DOWN Smart move 2. Build up your emergency fund - Give more money to the banks KEEP IT UNDER YOUR MATTRESS? STUFF IT IN YOUR SHIRT? OR GET SOME INTEREST ON YOUR INVESTMENT? HMMM< NO BRAINER HERE Smart move 3. Put it in an IRA. - Give to money to the goverment AN IRA IN MY NAME IS NOT "GIVING MONEY TO THE GOV"T" Smart move 4. Buy a dividend-paying stock - Give more money to american corporate BUYING A SLICE OF THE AMERICAN PIE IS AN INVESTMENT IN THE COMPANY, WITH THOUSANDS OF COMPANIES TO CHOOSE FROM, WITH A POTENTIAL RETURN ON YOUR INVESTMENT Smart move 5. Take a night class - Give more money to the useless educational system. NOT SO USELESS IF YOU HAVE LEARNED HOW TO BLOG AND EXPRESS YOUR (REALLY STUPID!) OPINIONS ON A PUBLIC FORUM.
    I myself appreciate the articles that other more articulate and more intelligent people take the time and effort to impart. Working as a banker in the credit card division, am happy to report that Americans owe less in credit card debt than in the previous years, but still a long way to go to getting folks back on their financial feet.

  • banker bob

    > Cyn: When paying off CC debt, pay higher payments to whatever has the highest interest rate 1st. With more going to the balance and less in interest, you will pay the debt off faster than making equal payments each month among the separate accounts.

  • austin

    If you cant wear it or eat it, you dont really need it..
    Save your money and pay your bills. Invest wisely. Pennies make Dollars

  • 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!'

  • bill melonas

    Where can you get 6.5% return on an IRA?

    • LordZordec

      You would have to go to a financial consultant (who you will have to pay for their services), and he can find an IRA or mutual fund that averages this sort of return. However, these are typically higher risk investments, which means one minor disaster in the stock market, and your $1000 could become $210.24 overnight.

  • Edna Longstreet

    AIM/Valic
    Income fund is where I started putting my money 15 years ago. Wouldn't go anywhere else. 1.11 compounded quarterly is 4.5 annual.

  • R G

    I know parents who are miserable who when they die have in excess of $200000 dollars in the bank which lawyers and courts steal and the kids while the parents are alive or after they die have nothing/get nothing ...no money no matter how hard and smart they work; I veto all the advice in this article. (Except maybe 6 and 7). Give your money to your kids somehow before you go into a nursing home (or preferably keep them at home). Maybe a joint checking. Get rid of the middleman. You worked your whole life don't let vultures, nursing homes... and fake judges and unrepentant lawyers steal from your estate. Invest in what you love and yourself and loved ones. I recall when banks paid 8% on savings. That is needed now. Get smart and trust no one. Tell no one if and when you get some bucks... Take a vacation, learn new things, meditate do yoga. Invest in comic books but only the ones you love.

    • JM

      totally true..

      • 6qckslvr9

        GOOD ADVISE!

        • Billy Sharp

          I'd rather try to have some money and not be living off the system! Your advise is welfare bound and not smart! You might as well say start buying cases of beer just in case "RG"

          • Billy Sharp

            JM & 6cqkslvr9 The dumbest thing ever "totally true", "GOOD ADVISE"?! you must have the gov. buying your groceries too!

          • Billy Sharp

            I'd enjoy " 8% " on my savings to but you cant have it both ways and have 3.5% on a mortgage! Oh never mind your renting or most likely in low income housing and they are paying you all to stay there!

          • ed

            Its not advise, it is advice!

    • Clair Rath

      Thank you, R. G. I agree with you. The economy is so stacked against us regular people and it makes it almost impossible for our kids to tread water, let alone get ahead. I share with my kids now because my debt is high enough to swallow up the value of my home, leaving little to nothing when I die. Fortunately, parent's debt does not pass down to their kids.

      • Nick Sabat

        Oh I think it does in certain ways - as explained above, the debtors, lawyers, tax man and all the rest get theirs first - but like i said u can be these odds, without a doubt.

    • Nick Sabat

      I can c ur frustration. I know firsthand the pain. And 7 well it falls in2 the hands o the vultures 2, if shit isn't set up right. Soooooo......what happens next - there is only 1 estate plan that some1 will ever need, if we r talk n about more than a 1000 bucks, which i thought was the subject o the article.
      C I have lost a great fortune that may have been mine, along with my siblings, someday with the pass n o our grandmother. I learned from her mistake. I can not speak o my brother or sisters, if they learned 2, i doubt it. Then, there is re-marriage that can take it's toll on what 1 parent or the other has worked so hard 2 build - because o right o survivorship - screws u everytime. But there is a way to beat all these odds - and 4 a small fee of 3 bucks, i will give u that way and lawyers, judges, courts, new spouses and the tax man/lady can't do shit about what is passed on2 the heirs, not whatsoever. let me know - 3 bucks is the price o some coffee in some places, so skip a cup and kite me.

    • Nick Sabat

      1 other note, about ur reply - I noticed u mentioned about banks pay n 8% c the thing is, they will not pay that now, because they want the larger spread - between giving u what should b intended 4 u - that is, they take ur money, lend it out @ say 18 - 25% and give u, .0325%. WOW! Same goes 4 credit card companies - they r cash heavy companies and need 2 put their money somewhere 2 make more money on it - so they lend it out 2. in essence, they r middlemen - learn how 2 cut out that middleman and if u like fat, then eat it. i remember my dad used 2 love the fat inside the eye-o-round - I never knew y? But he did. Large companies r get n 2 fat, start chew n some o it off o them, u may like it. Always available, 4 giving advise - this 1 I will give out 4 5 bucks, the price of a small pizza. Contact me - through fb or post n ur mail here.

  • john smith

    If anyone is getting excited about one thusand dollars, they have HUGE financial problems.

    • Dennis85

      IDK, the article says on average people carry 15k debt on their credit card.

      That sounds like a lot of people should be excited about 1k that aren't.

      • john smith

        As I said - HUGE financial problems there !!    !5K credit card debt, GOOD LORD !!

    • LordZordec

      So, if someone offered you $1000, you wouldn't get excited?

      • john smith

        No.  Pleased, but not excited.

    • Liliana Wilson

      There are many hard working people and elderly, who were once hard working people, who would be quite excited over $1000. There are many who don't have money to set aside, or who have very little to set aside, after paying for daily living (rent/mortgage, food, medical, clothing). There are people who work 2 jobs just to get by so; $1000 would be a "big deal".

      • john smith

        And again if one gets excited over a thousand dollars, they have HUGE financial problems, as you just pointed out.

        • briwas101

          I have zero debt (use credit card for rewards but havent paid a cent of interest) with enough saved up to last me a year and I would be pretty excited about $1000.

  • jm

    Hey R G - Try a living trust - wise up

    • Billy Welfare Sharpe

      why the hate? just an asshole?

  • Billy Welfare Sharpe

    Plot twist - Billy Sharpe is on welfare. AND is committing welfare fraud by not reporting his income from his rap career.
    Baaaad hater Billy