What to Do With $5,000

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Got $5,000 burning a hole in your pocket? We've compiled a few ways you might spend your cash -- and truly benefit in the process.

That $5,000 can give you, your spouse, and kids a nice vacation to remember. If it's just you, perhaps with a significant other, your money will go even further -- and so can you. If you find a bargain, you can get even a short but exotic trip to somewhere like Antarctica for around $4,000 or $5,000, for a berth in a two-person room. Bear in mind there will be extra costs involved in getting to the boat, among other things. (And you might need a zoom lens for your camera, to better capture penguin faces.)

Invest it
If you're one of the many millions of Americans whose retirement savings are woefully behind schedule, investing your windfall could be a truly smart move.

If that $5,000 gets invested in a broad-market index fund, and earns the market's historical average (never guaranteed, of course) of around 10% per year, in 30 years it will grow to more than $87,000. That may not seem like much, but if you withdraw 4% of that each year in retirement, you'll be getting about $3,500 each year -- all from a one-time $5,000 investment.

That said, you can do even better than the market's average. For instance, the CGM Focus Fund (CGMFX) has put together a 10-year track record with average annual returns of nearly 20%. Although you shouldn't count on such stellar returns in the future, the fund's current holdings, which include Goldman Sachs (NYSE: GS  ) , Freeport-McMoRan (NYSE: FCX  ) , and Google (Nasdaq: GOOG  ) , have made welcome contributions to the fund's performance in the past year.

Individual stocks could also give you better returns. Opening a discount brokerage account with that $5,000 could get you started on the right track toward turning that seed money into a serious stash. Doing so by starting an IRA could bring you tons of additional tax benefits.

Give it away
I'm serious. You can do considerable good by strategically donating that $5,000. Even giving away $1,000 of your stash will make a big positive difference. We Fools have supported a number of charities over the years in our Foolanthropy campaigns.

Earn an instant 25% return
If you're saddled with credit card debt, pay it off before you invest. While you can hope to earn 10% or more per year on your investments, you could be forking over 20% per year in interest on your credit card. If your interest rate is 25% -- somewhat high, but certainly not unheard of -- paying off $5,000 of debt could save you $1,250 in interest this year. And with credit card issuers like Citigroup (NYSE: C  ) , American Express (NYSE: AXP  ) , and Capital One (NYSE: COF  ) taking steps to make sure they limit their credit exposure, even as the economy begins a sluggish recovery, getting your debt under control is more important than ever.

Remodel your home
Spending money on your house can give you better living quarters now, and more money when you sell. Most remodeling projects will let you recoup much what you spent by fetching a higher price come sale time. With around $5,000, you may be able to buy more energy-efficient windows, replace the siding on your home, get your house painted, or install a new roof.

Improve yourself
If you'd rather not remodel your home, why not remodel yourself? You could learn a new skill or a new profession by going back to school. Companies like Apollo Group and ITT Educational Services (NYSE: ESI  ) have revolutionized higher education, letting you take courses or earn a degree or professional certificate. At many colleges, you can take a course preparing you for anything from a human resources management certification to becoming a forensic nurse.

In short, $5,000 isn't just a bundle of cash. It could be your ticket to a better home, a better nest egg, or even a better life.

For many, $5,000 is just the tip of the iceberg. Find out the secret to becoming truly wealthy.

Attention, Fools! Looking for a trustworthy financial planner? The Garrett Planning Network is offering a limited-time 10% discount for new Motley Fool clients. Just click this link, search your state, and look for the Motley Fool icon to identify participating advisors.

This article was originally published Oct. 6, 2006. It has been updated by Dan Caplinger, who owns shares of Freeport-McMoRan. Apollo Group and American Express are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool is Fools writing for Fools.

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