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We’ve all played the game “What would you do if you had $1 million?”
Well, $1,000 may not be anywhere near $1 million — but for plenty of Americans, it can feel just as life-changing. Especially as companies lay off workers and cut employee benefits.
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So, what’s the smartest way to use a $1,000 windfall? MarketWatch spoke with six financial advisors for their opinions (1). The findings point to a clear pattern — despite different approaches, there’s a strong consensus among experts on how that money should be allocated.
The basics: Open an emergency fund or pay down high-interest debt
Three of the six financial advisors recommended opening or contributing to an emergency savings fund (2).
“Ideally this should be between six and 12 months of core living expenses,” Flavio Landivar, a CFP at Evensky & Katz Wealth Management, tells MarketWatch. He recommends keeping the money in a high-yield savings account or money market account, where it can earn a higher interest rate than in a traditional savings or checking account (3).
This means that in the event of an unexpected job loss — or medical emergency — you’ll have something in the bank to make ends meet.
Earn up to 4.05% APY on your emergency savings
A high-yield account like a Wealthfront Cash Account can be a great place to grow your uninvested cash, offering both competitive interest rates and easy access to your money when you need it.
A Wealthfront Cash Account currently offers a base APY of 3.30% throught program banks, and new clients can get an extra 0.75% boost during their first three months on up to $150,000 for a total variable APY of 4.05%.
That’s ten times the national deposit savings rate, according to the FDIC’s March report.
Additionally, Wealthfront is offering new clients who enable direct deposit ($1,000/mo minimum) to their Cash Account and open and fund a new investment account an additional 0.25% APY increase with no expiration date or balance limit, meaning your APY could be as high as 4.30%.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, you get access to up to $8M FDIC Insurance eligibility through program banks.
Joon Um, a certified financial planner with Secure Tax and Accounting, also recommends using that $1,000 to pay down any high-interest debt (4).
Debt is considered “high-interest” if it charges an annual percentage rate (APR) of 8% or higher (5). Depending on your situation, this could include debt from credit cards, payday loans, or regular personal or auto loans you took on when you had a low credit score. Lenders charge higher rates to people with weaker financial profiles.
If you have any of these types of debt, prioritize paying them off before lower-interest debts. This can make a dent in what you owe, save you money on long-term interest, and even improve your credit score.
The two big strategies for doing this are the avalanche and snowball methods. As the name implies, the avalanche approach involves paying off your biggest debt first, then wiping out the smaller debts once you’ve freed up money. The snowball method takes the opposite approach by knocking off smaller debts to start, then building up to the big one.
Read More: Robert Kiyosaki warned of a ‘Greater Depression’ — with millions of Americans going poor. Was he right?
Consolidate at a lower interest rate
If you have multiple high-interest debts and are struggling to pay them off, consider consolidating your balances into a personal loan through Credible. Instead of juggling multiple monthly payments, you’ll have one predictable payment to manage each month.
Through Credible’s online marketplace, finding the right loan becomes much simpler. Credible lets you comparison-shop for the lowest interest rates for free with just a few clicks.
In minutes, you’ll see all the lenders willing to help pay off your credit cards or other debts with a single personal loan.
You can find personal loans starting at 5.96% APR. Credible also offers a best rate guarantee — and if you close with a better rate than you prequalify for on the platform, you’ll get a $200 gift card.
Put the money into a retirement account and invest it
Maybe you already have the basics covered, with a full emergency fund and no high-interest debt. Next, ask yourself whether you have a retirement fund. If not, opening one and depositing the $1,000 into it is a natural next step.
Check whether your company offers an employer retirement account, such as a 401(k). Some even match a percentage of your contributions, up to a certain amount. You can also open a traditional or Roth IRA with a brokerage firm.
So, how should you invest that $1,000 once it’s in the retirement account?
“I’d just put it into a broad index fund and get it invested, no need to overthink it,” Um tells MarketWatch (6).
You might also want to think about ways to stretch that initial $1,000 investment further. The hardest part isn’t choosing what to buy — it’s actually getting started and staying consistent. If you’re new to investing, this can be a brand new variable to think about when it comes to your budget
Platforms like Acorns allow you to turn your spare change from everyday purchases into an investment opportunity.
How it works is simple: Just link your debit and credit cards, then Acorns will round each purchase you make up to the nearest dollar. If you buy a morning coffee for $3.25, Acorns will round it up to the dollar, transforming it into a 75-cent investment in your future.
The platform also offers retirement-focused accounts through Acorns Later. With the Acorns Gold plan, you can get a 3% IRA match on new contributions in the first year — that’s up to $225 if you max out your yearly contributions.
If you want to supercharge your investing, you can also set up recurring monthly contributions alongside your round-ups. And the best part? If you sign up today and set up a recurring $5 investment, Acorns will add a $20 bonus to help you begin your investment journey.
Consider lower-risk investments
Do you have a lower risk tolerance when it comes to investing? Then fixed-rate investments, such as bonds and certificates of deposit (CDs), may be more to your liking than stocks.
These are also good options if you’ve already invested in the stock market but are looking for safer investments to diversify your portfolio.
“If it is for short-term needs, put it in cash or bonds or a CD,” Nicholas Bunio, a CFP at Retirement Wealth Advisors, tells MarketWatch. “Regardless of market values, or inflation, sudden shocks can and will happen to the world.”
These lower-risk, fixed-rate investments can add a layer of protection when unexpected events hurt the stock market.
If you’re looking for a steadier place to grow your cash, platforms like CD Valet can make it easier to spot high-yield CDs that fit your goals. Whether you’re building an emergency fund or parking cash for the future, locking in a competitive rate can help your money work harder.
CD Valet tracks more than 40,000 verified rates from FDIC-insured banks and NCUA-insured credit unions, giving users a fuller snapshot of the market instead of just a handful of promoted offers.
Unlike other websites, they show every publicly available rate, ensuring you have a comprehensive view of the market. Plus, their CD rates are updated continuously, so you can shop, compare and open CDs with ease.
— With files from Laura Grace Tarpley
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
MarketWatch(1),(2),(3),(4),(6); Investor.gov (5)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
