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Viewing the dollars that you spend as investments can help you make smarter financial decisions. If you have $1,000 to spare, for example, instead of just buying a fancy new suit or TV, think about how you might best deploy it. Here are five smart things you can spend $1,000 on.
Plump up an emergency fund
If you're not independently wealthy, you probably need an emergency fund stocked with about three to nine months' worth of living expenses. If you experience a job loss or medical setback and your income shrinks or disappears for a while, you will need to be able to keep your roof over your head and food in your belly and the lights on. You'll need to be able to pay your insurance bills and keep your car running, too, among many other basic needs. If you already have such a fund, or a way to cover living expenses for a protracted period, great. If not, boosting your financial security with that $1,000 is a smart move.
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Pay off debt
Next, do you have a significant debt burden? High-interest rate debt is especially dangerous, as it can spiral out of control rather quickly and can be very hard to pay off. Consider this example: If you carry a balance of $20,000 with a 25% annual interest rate and a minimum payment of 4%, it will take you 20 years to pay off that debt, and in the process you'll pay a total of more than $41,000. Whether you owe $2,000 or $20,000, applying $1,000 to reducing your debt can make a big difference in your financial health. If your interest rate is 25%, you can avoid paying $250 in interest!
Invest in dividend-paying stock
If you've got an emergency fund and are out of debt, parking that $1,000 in shares of stock that can grow and generate income is a powerful thing to do. If you invest in a stock that grows by 10% annually, your $1,000 can turn into $10,835 over 25 years. Better yet, if it kicks out 4% interest, you'll have $40 suddenly appear in your portfolio in the first year. If that payout grows by 6% annually over 25 years, it will eventually be generating $172 in annual income -- not bad for an initial investment of just $1,000. But wait -- there's more! Over the 25 years, your dividends would total more than $2,000 -- that's more than double your initial investment and separate from the stock-price appreciation.
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Start a child investing
Another fine thing to do with $1,000 is to get one or more of your children (or grandchildren, nieces, nephews, neighbors) started investing. You might start them off with a copy of our book, The Motley Fool Investment Guide for Teens, and open a custodial brokerage account with them. Have discussions about companies and how they grow and face challenges. Have the kid(s) choose a few companies that interest them -- perhaps such as Apple, Boeing, Chipotle Mexican Grill, Disney, Netflix, Nike, or Starbucks. You might buy a few shares of a few of them and then follow them in the news, watching as the stocks rise or fall. The kids will learn how the stock market works and can see how money can be made (and lost) in it.
Treat yourself -- to an experience
Finally, if all your financial ducks are in a row, you might simply treat yourself with that $1,000. Don't just buy a new toy, though. Studies have shown that spending money on experiences instead of material things tends to deliver sense of well-being. Experiences, after all, create memories that can be savored for a long time. Consider spending your money on travel or on lessons or on tickets to some great performances.
Spend a little time thinking about the best ways in which you can spend any available dollars and you'll likely be happy you did.
