I have $1,000…now what?

Coin stack and saving money
KJ: There are a lot of things you can do with $1,000. Whatever your situation is now may affect how you use the funds for what’s right for you. Consider the following prioritization:

    1) Set up an emergency fund. Set aside 3-6 months of your living expenses in highly liquid, accessible accounts (whether in a regular savings account at a bank, CDs, or part of an investment account), make sure it is easy to access and there aren’t restrictions (or are minimal restrictions) in the event you need to access it.

    2) Pay down debt. Start by paying down the highest interest rate credit card or line of credit. Some people champion paying the smallest balance first which can work if you need to see instant gratification, but you will actually be better off-putting as much as you can toward the higher rate credit card first.

    3) Save to your retirement plan. Whether an employer plan, 401(k), or an IRA, consider funding more if Uncle Sam will allow you. Check out our post on Account types: a tax perspective for a comparison of retirement and non-retirement accounts.

    4) Pay extra toward your mortgage, car loan, or student loan.

    5) Splurge on a nice meal out. Live a little and enjoy a nice meal if you have anything left over.

Generally speaking, my perspective on the concept of ‘sudden money’ – whether through game show winnings, lottery, bonus, or gift – is to plan for about 1/3 to go to the government in some form of taxes, immediately save 1/3, and then apply the remaining 1/3 to whatever your heart desires. For me, my extra often includes ‘more savings,’ but that’s just me. You didn’t have the money moments ago, so why spend it all? The only thing that spending it does is get you used to living a more expensive lifestyle than just moments before. It’s easy to go up the spending ladder, but it’s so much harder to come back down! If you receive unexpected money of a significant size (say if you find yourself with an inheritance of $50,000), then some more planning than the 1/3 method will be necessary to assess your goals.

AJ: A few years ago I could have thoughtlessly and effortlessly spent $1,000 in minutes, but after several much deserved vacations and long weekends, I would now prefer to save $1,000 for long enough to turn it into a few days of solitude. We regularly talk about the importance of saving as much as possible but we all need to indulge in number 5 every now and then to enjoy the fruits of our labor today instead of waiting for the slowly-approaching date of retirement.

As we have said before, look to maintain balance. If you find yourself in a position where you regularly have more than you hoped to save and have paid for all of your necessary expenses, do allow yourself a “live a little” moment every month, but do put some of that away for the greater, long-term good.

  • What would you do with $1,000?
  • Would your prioritization be the same?

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    6 thoughts on “I have $1,000…now what?

    1. I’m the type of person that tends to spends more if i have less money. Bizarre but true. Anytime i get a larger lump sum of money than usual, I prefer not to touch it. So in my case the $1000 will go straight into my savings.

      • Interesting perspective, Mark. Just shows that each person is different and has methods that work best for them!

    2. If you have an extra $1000 one of the things you can do is invest it in the stock market. Find an undervalued stock that has had a good historical growth track record and buy it. Another thing you can do is invest it in a CD, an option that offers no risk of losing your money.

      • I would say that it depends on your goals. If you’ve already met your emergency fund and are funding your other goals, then adding to more savings in the stock market may make sense. It’s all about weighing your goals and what you need to do to accomplish them since you shouldn’t put more aggressive funds like stock/equity investments in the ‘bucket’ to be used for any short-term goals.

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