EVERY ONCE IN A WHILE, it happens – you wind up with a small windfall of cash in your bank account that isn’t immediately earmarked for bills. For many people, that happened this year. As you know, a stimulus check – most of them being around $1,200, with possibly more if you have children – was sent from the federal government to help us through an economy devastated by the coronavirus pandemic.
Of course, you may have burned through that stimulus check some time ago. However, if you’re still waiting for it – or have some of it left in your bank account and are trying to figure out what to do with it – or you have cobbled together some extra money from other sources – here are some ideas on how you might want to use an extra $1,000.
- Spend the money.
- Pay down credit card debt.
- Pay down student loan debt.
- Contribute to your 401(k), Roth IRA or other retirement account.
- Make home repairs.
- Invest in yourself.
- Open a 529 account.
- Refinance your home.
- Put money aside for back-to-school shopping or the holidays.
- Pad or create an emergency fund.
Spend the Money
As in, stimulate the economy, “and preferably on things which are labor-intensive and local,” says John Kilpatrick, managing director of Greenfield Advisors, a real estate and appraisal consultancy headquartered in Seattle.
Kilpatrick suggests, “Get a haircut. Go out to dinner. Shop for locally produced groceries. Get the car fixed by a local mechanic. Patronize local stores.”
And while it may sound decidedly not smart to earmark $1,000 for essentially a shopping spree, Kilpatrick only suggests using the money to stimulate the economy if you can do so without hurting your finances.
And chances are, you need a haircut (just be sure to wear a mask), and if your car needs fixing, that’s a perfectly reasonable way to spend money.
Pay Down Credit Card Debt
The only bummer is that $1,000 is probably not enough to wipe out all of your credit card debts.
According to the credit bureau Experian, the average balance on a credit card is now almost $6,200 – and the typical American borrower has four credit cards.
Still, you could pay whatever’s making your blood pressure rise. “This is usually the highest interest rate credit cards, or the cards with the worst minimum payments,” Kilpatrick says.
Focus on Paying Down Student Loan Debt
Alex Beene, a financial literacy coordinator and educator for the state of Tennessee, suggests this.
“While it may sound like the last thing to do during this time, I think if you have an extra $1,000, perhaps the best thing to do would be to pay down your student loans with it,” Beene says. “While the federal government did suspend payments on them through Sept. 30, they also stopped the accrual of interest on those through that period, as well. Now is an unheard of time for Americans to pay those loans down while not worrying about interest being added to them every month.”
Contribute to Your 401(k), Roth IRA or Other Retirement Account
The median savings balance among baby boomers is only $144,000, according to a Transamerica survey released in May. It was conducted from Nov. 6 until Dec. 27, 2019, among a nationally representative sample of 5,277 adults.
Sure, $144,000 is a nice sum of money – but it’s hardly enough to live on, if you hope to retire for a couple decades.
So you’ll miss the $1,000 if you put it all into your retirement accounts now, but your future self will think you present self is a forward-thinking genius.
Make Home Repairs
Your home is probably your most valuable asset, and as all homeowners know, there are numerous maintenance costs that come with it. When you have gutters full of leaves, that can contribute to roofs leaking and even flooded basements; maybe it’s time to hire somebody to clean out the leaves in your gutters, if climbing up a ladder isn’t your thing. You could hire a service to remove a tree that’s near your home and looks like a good windstorm could easily push it into your living room. You could pay for a plumber to replace your sump pump that you know is going to break sooner or later.
In other words, you could use $1,000 to stimulate the economy with a home contractor – and prevent a problem down the road that will end up costing you a small fortune.
Invest in Yourself
“I would suggest business professionals spend some of that money on building themselves up. Especially in the areas of communication skills,” says Jeremy Teitelbaum, a professor of communication studies at California Polytechnic State University in San Luis Obispo, California.
He admits that he is “biased” toward investing in your communication skills, since that’s his field.
But he makes a good point. “Most studies show they are one of the most desired skills employers look for. This will help people get ahead at work and become better leaders and get promotions and raises.”
He suggests taking a class, buying a home study course or hiring a communications coach. In any case, it’s hard to argue that spending money to teach yourself additional skills that will help you make more money isn’t a good idea.
Open a 529 Account
If you have kids you hope are college bound, and especially if you’re a new parent, you could start saving for their college fund. You can invest in any state’s 529 plan, and so if yours is too expensive or you simply don’t like it, you can always put your kid’s future college money into another state. In many states’ 529s, you’ll find that the minimum initial contribution is only $25 a month.
In any case, you’ll want to get up to speed on 529s and shop around. But you should be able to get a 529 account or two open – and still have money left over.
Refinance Your Home
If you do have $1,000 that you can afford to let go of, Audra Kershner casts a vote for refinancing. Based out of Goodyear, Arizona, Kershner runs the blog Mulling Over Maybe, which focuses on professional development, personal finance and self-improvement.
“Refinancing your mortgage will likely cost over $1,000, but it’s also likely to be one of the best ways to spend an extra grand in your bank account,” Kershner says.
Her reasoning goes like this: “Though there are upfront fees including application, origination and inspection, mortgage rates are currently at an all-time low. By refinancing now, you may pay a few thousand dollars upfront – depending on the remainder of your mortgage balance and current interest rate – but it’s likely to save you much more over the long run if you can reduce your current interest rate by 1% or more.”
Put Money Aside for Back-to-School Shopping and the Holidays
If you have children, even if they wind up going to virtual school again, the end of the summer and end of the year will be here before we know it.
If you have an extra $1,000, you might want to put some or all of that money away to go toward school supplies and gifts, since both shopping seasons can take a hit on anybody’s wallet.
We weren’t prepared for sheltering in place and social distancing. At least we can prepare for back-to-school and holiday shopping.
Pad or Create an Emergency Fund
“While this sounds completely unsexy, the best thing that the majority of Americans can do with $1,000 is put it into a high-yield savings account,” says Laura Davis, a certified financial planner with Cuthbert Financial Guidance in Decatur, Georgia.
Of course, you’re unlikely to get a strong interest rate in a high-yield savings account at the moment. A typical high-yield savings account right now is a depressing 1.30% (though that’s a king’s ransom compared to a typical non-high-yield savings account, which is often 0.01%).
So your $1,000 isn’t going to bring you great wealth in a high-yield savings account any time soon.
But you can do no wrong by putting the money in a bank account and letting it sit there for a while and let it collect interest – and in the meantime, just keep it there until you do need it.
Even better, of course, is if you keep adding to that emergency fund.
Davis puts it this way: “Just think, if everyone had three months’ worth of expenses in the bank at the beginning of the COVID-19 crisis, well, it wouldn’t have been as much of a crisis, at least financially.”