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Make the Most of $500

Money goes too fast. Most of the time, we simply spend it without thinking how best to leverage what we earn. Seriously, when was the last time you actually pondered how to spend $500?

Hey, I understand. I'm not here to criticize, but to help. Following the spirit of what we do in our Motley Fool Green Light service, I have a few ideas that you can take to the bank.

$500 buys you ...
What does $500 buy? A quick Google search says:

  • Two minutes of face time with White House aide Karl Rove. Were this actually true (it isn't), you could claim wallet-fattening political favors for years.
  • A better computer. Anything that helps me type faster should earn me more money, right?
  • A decent telescope. I could be the next Stephen Hawking! No, you say? Fine, let's move on.

Spend Foolishly
There are better ways to get more for your money. I interviewed my wife for this story while washing dishes last night, and she says bulk grocery shopping may be your best bet. How? A trip to Costco, Wal-Mart, or the new Amazon grocery store could save you a bundle in sundries. Say you have a baby who needs size 3 diapers. $495.45 buys you 27 80-packs of Huggies from the local quickie mart. Amazon charges $449.85 for the same number of diapers in 15 larger, 144-diaper packs. Money in the bank: $45.60

Or invest Foolishly
Of course, you may earn more by investing -- if you're judicious. Consider managed mutual funds. Through December 2005, the average domestic stock fund charged 1.42% in annual expenses. Compare that to the Vanguard 500 index fund, which charges just 0.18% annually; the difference could cost you hundreds over the course of a decade.

Don't believe me? Here's a look at what you might pay were each fund to earn 10% annually, with expenses subtracted at year-end:

Year

Stock fund value

Index fund value

1

$542.29

$549.01

2

$588.17

$602.83

3

$637.93

$661.92

4

$691.89

$726.81

5

$750.43

$798.05

6

$813.91

$876.28

7

$882.77

$962.17

8

$957.45

$1,056.49

9

$1,038.45

$1,160.05

10

$1,126.30

$1,273.76

Source: TMF estimates

Since most stock funds are already closet "index huggers" -- that is, they tend to buy the same stocks index funds own -- you're simply paying more to hold blue chips such as IBM (NYSE: IBM  ) , General Electric (NYSE: GE  ) , Caterpillar (NYSE: CAT  ) , and Altria (NYSE: MO  ) .

But not all managed funds are terrible. Some are great, especially those that cheaply provide expertise you lack. Let's say you're interested in micro-cap stocks. Holding volatile high-fliers such as Indus International (Nasdaq: IINT  ) , Aspen Technology (Nasdaq: AZPN  ) , and CoTherix (Nasdaq: CTRX  ) inside a fund's diversified portfolio will reduce risk as you seek multibagger returns. Money in the bank: $147.46

Follow the money
With a pair of simple tips, we managed to save you $193. Not bad, eh? If you have more money-saving tips, please tell me. I'm writing new articles on personal finance and investing basics every week as part of the Motley Fool Green Light service. It's tailor-made for Fools like you who aim to take control of their financial destiny. Click here if you'd like to learn more.

Fool contributor Tim Beyers would love two minutes with Mr. Rove. What do you say, Karl? Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get a peek at everything he's invested in by checking Tim's Fool profile. Wal-Mart is a Motley Fool Inside Value pick. Costco and Amazon are Motley Fool Stock Advisor selections. The Motley Fool's disclosure policy is a bargain at any price.


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Tim Beyers
TMFMileHigh

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

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