To improve financial conditions, saving money is a great start. Many financial experts suggest that establishing an emergency savings fund equivalent to at least six months’ worth of living expenses can bring peace of mind to daily life. In addition, saving money for other goals such as children’s education or retirement is also a wise move.
If saving thousands of dollars is not feasible at the moment, saving $1,000 can still have a significant impact on your financial situation. So, when you have $1,000 to spare, how can you make money with money?
Here are eight wise financial and investment methods introduced in a Yahoo Finance article, to see which one suits you best.
Although the ultimate goal of setting up an emergency fund is to save six months or more of living expenses, you can start with smaller goals. Many financial experts believe that starting with saving $1,000 is a good initial target when building an emergency fund.
It’s advisable not to deposit $1,000 into a regular checking account or traditional savings account, but rather into a high-yield savings account (HYSA).
The best high-yield savings accounts usually come from online banks, which often offer higher Annual Percentage Yields (APY) compared to traditional banks. Some can provide interest rates above 5%, allowing you to grow your savings faster. However, be sure to choose a reputable online bank.
Keeping your savings in a separate account will also reduce the temptation to spend it.
A Certificate of Deposit (CD) is another type of account. The advantage is that it offers higher interest rates, which are fixed and not subject to market fluctuations. The downside is that you cannot withdraw funds within a specific term, known as the CD maturity period. Early withdrawals may incur penalties.
Some financial institutions offer opening bonuses to attract new customer funds. Depositing $1,000 into a bank that offers rewards can earn you a one-time cash bonus of several hundred dollars.
The Standard & Poor’s 500 Index Fund comprises stocks from the 500 largest US companies, with an average historical return of approximately 10% and about 32% return rate this year. If you are a novice investor, this type of index fund is a good choice.
Index funds have lower volatility compared to individual stocks. However, regardless of when you invest – even in index funds – understanding that there is inherent risk is crucial.
While $1,000 may not be enough to entirely eliminate credit card debt, it can help improve your credit score. According to Experian credit bureau data as of 2024, the average credit card balance for Americans is $6,699.
There are two ways to repay debts: by first paying off the lowest balance or the highest interest rate credit card debt.
Any of the above methods can establish a positive start to debt reduction. Other measures can also be taken, such as cutting expenses or increasing income to repay credit card debt.
Putting aside money into a retirement account is another wise move, especially when additional funds from your employer are possible. When savings are deposited into a 401(k), the funds grow tax-deferred until withdrawn.
If you cannot utilize an employer-sponsored retirement plan, you can open an individual retirement account (IRA) and save funds there. In 2024, you can deposit up to $7,000 into an IRA, or $8,000 if you are over 50 years old.
Each country has its own policies and methods supporting retirement savings.
As parents, if you have an extra $1,000 in income, consider saving these funds for your child’s college education. Each country has its own ways to support parents in setting up education funds. In the US, a popular way for parents to save for college is through the 529 plan.
The 529 plan is a tax-advantaged savings plan that helps parents afford their child’s college education expenses. Deposits in a 529 plan can grow tax-deferred, and withdrawals for qualifying education expenses may be tax-free. Additionally, after 15 years, any unused funds in the 529 plan can be transferred to the beneficiary’s Roth IRA (up to $35,000).
In conclusion, you don’t need thousands of dollars before creating an emergency fund or starting to save for retirement. Even $1,000 or less can set you on a path to better financial management. The key is to review your budget and develop habits of spending less and earning more.