SUMMARY: For some, $1,000 is a drop in the bucket. For others, it’s a fortune. Regardless of what it means to you, here are some ways to put it this money to work and improve your life.
No one can argue that having an extra grand in your pocket is a good thing, although it’s not necessarily something that will change your life immediately, A good financial plan, like a good pizza dough, needs a good starter—something that gets it going in the right way.
But what to do with it? There are many ways to use that $1,000, and the possibilities are enough to make you dizzy.
Here are just a few ideas.
Start a health savings account (HSA)
Not only is an HSA a useful way to save for healthcare expenses, but it’s also a surprisingly effective tool with which you can save for retirement, as it takes advantage of compound interest. At the beginning of 2017, 21.8 million people had HSAs, representing a 9 percent increase from the previous year.
The real savings power behind an HSA is that you avoid taxes in three key ways: the contributions themselves are tax-deductible, the money is tax-deferred as it grows and withdrawals for qualified medical expenses are tax-free.
The one downside is that HSAs are only available to members of high-deductible healthcare plans (HDHPs).
Save for college
It’s never too early to put money away for your kids’ future, and $1,000 is the perfect amount for starting a 529 college savings plan. A 529 plan comes with some tax benefits and you can invest in an out-of-state plan if your own doesn’t offer comparably favorable terms.
As it is with an HSA, you can only withdraw 529 funds for qualified expenses, in this case those relating to education. If you deviate from that, you’ll be hit with a 10 percent penalty and any applicable taxes (unless your child has won a full scholarship).
Don’t have any additional money to put in after the $1,000? A 529 can be a great gift idea for grandparents, other family, and friends who are always looking for suggestions for what to get Junior this holiday season.
Teach your kids the basics of investing
While your kids are waiting to cash in their 529 fund, take the opportunity to give them a lesson on the power of investing. Open a custodial account in both your names and the names of research companies that you may consider supporting. Talk about their products, services and overall missions. What do they want their money to fund and why? How do they balance high returns with social responsibility?
Members of Generation Z passionately support brands that support social causes, which may inform their investment decisions.
- Apple CEO Tim Cook is a longtime supporter of LGBTQ rights.
- Outerwear company Patagonia is a well-known environmental advocate, and has been specifically outspoken on climate change. Case in point: The company donated its 2017 $10 million tax cut to "groups committed to protecting air, land and water and finding solutions to the climate crisis."
- Levi Strauss & Co. has used 1 billion fewer liters of water since 2011 by making its jeans manufacturing process more efficient.
Prepare important legal documents
On the surface, it seems far less exciting than comparing stocks with your kids or using that HSA for a good workout at the gym, but legal paperwork brings something far greater—peace of mind in the event of a crisis, and $1,000 is a small price to pay for that.
Start with these documents:
- A will. In the event of your death, this can lift a pretty heavy weight off the shoulders of those you leave behind. Appoint an executor for your estate and a guardian for your children.
- A living will. Just as importantly, if you become incapacitated and need others to make your medical decisions for you, particularly with respect to end-of-life issues, then this document is essential.
- Durable healthcare power of attorney. A living will can only answer so many questions. This person acts as your proxy when making any active decisions about current healthcare issues that go beyond the scope of your living will, such as choice of hospital, medications and whether to stop or extend treatment
Get a financial tuneup
Why not use that $1,000 to make sure the rest of your money is doing what it should to help you now and in the future? Connect with a Certified Financial Planner (CFP) and let them give your finances the once-over. If possible, use a fee-only advisor, as he or she will have no personal stake in any of the investment options you choose.
Put that grand to work
For some, $1,000 is a drop in the bucket. For others, it’s a fortune. Regardless of what it means to you, there are countless ways to put it to work to improve your life.
Whatever you do with it, it’s always a good idea to consult the experts. Our e-book, Your Complete Road Map to Retirement, sets you up with free planning tools that will start generating ideas.