Vault’s Viewpoint
- Saving $1,000 in an emergency fund is a great way to protect yourself from unexpected costs.
- If you’re focused on saving for retirement, you can put an extra $1,000 in a 401(k) or IRA.
- Investing in index funds, CDs and stocks can help you diversify your portfolio and build wealth over time.
1. Save an Emergency Fund
Unplanned expenses are a part of life and if you aren’t prepared, they can cause a lot of financial stress. Having your car break down or receiving a surprise medical bill can set you back hundreds of dollars. Without an emergency fund, you may be forced to put these charges on a credit card.
The size of your emergency fund will vary depending on your income and monthly expenses. But most financial experts recommend having three to six months worth of expenses saved in cash.
If saving that much money doesn’t feel doable, it’s okay to start small by saving $1,000 in a high-yield savings account. From there, you can set up an automatic monthly transfer and continue saving until you reach your goal.
2. Pay Down Credit Card Debt
If you have high-interest credit card debt, paying it off should be your top priority. The average credit card APR is the highest on record, reaching 22.8% in 2023. Every time you pay interest on a credit card, that’s money that could be going toward savings or other expenses.
You can pay down credit card debt by using the debt snowball method. This strategy involves paying off one card at a time, starting with the card with the smallest balance. It helps you build momentum by creating small wins.
If you’re more concerned about reducing your interest charges, you can focus on paying off the card with the highest APR first. The strategy you choose doesn’t matter, but it’s important to have a plan you can stick with.
If $1,000 barely makes a dent in your credit card debt, you may want to transfer your balance to a card with an introductory 0% APR. This will temporarily prevent the interest charges from continuing to accrue while you pay off your balance.
But a balance transfer card is only a good plan if you can pay off the card in full before the introductory period is up. Otherwise, you may continue to stay trapped in a cycle of credit card debt.
3. Contribute to a 401(k)
If you’re already debt-free and have a fully funded emergency fund, you’ll want to focus on your retirement savings. An employer-sponsored retirement account like a 401(k) is the best place to start, especially if your employer will match your contributions.
A common employer match is between 3% and 6% of an employee’s salary. If your employer offers something like this and you don’t take advantage of it, you’re missing out on free money.
Since 401(k) contributions are made with pre-tax dollars they’ll reduce your taxable income. In 2024, the IRS increased the maximum contribution to $23,000, and if you’re over 50, you can make an additional catch-up contribution of $7,500 per year.
4. Contribute to an IRA
If you don’t have an employer-sponsored retirement account, you can invest the $1,000 in an individual retirement account (IRA). If you opt for a traditional IRA, most contributions are tax deductible for that year and you won’t pay taxes until you withdraw the funds.
In comparison, you’ll pay taxes on any contributions you make to a Roth IRA, but you can withdraw the money tax-free in retirement. In 2024, you can contribute a maximum of $7,000 per year to an IRA or $8,000 if you’re over the age of 50.
5. Invest in Index Funds
Index funds are a passive investment strategy and a great way to build long-term wealth. An index fund is a group of stocks that attempts to track the performance of an existing market index.
Since the fund has the exact same investments as the index it tracks, no hands-on management is necessary. That means index funds usually come with low expense ratios. And it’s rare for index funds to pay capital gains so they come with fewer tax consequences than actively managed mutual funds.
Start by researching different index funds and considering the company size, market capitalization, and sector you want to focus on. If you’re new to index funds, you may want to start by choosing a fund that tracks the S&P 500. An S&P 500 fund helps diversify your portfolio and gives you access to some of the biggest companies in the U.S.
6. Open a Certificate of Deposit (CD)
A certificate of deposit (CD) is a low-risk savings account offered by financial institutions like credit unions and banks. When you open a CD, you agree to leave the money there for a specific length of time—typically anywhere from three months to five years. A longer CD term will help you earn more interest on your money.
Once the CD matures, you’ll receive your initial deposit back with interest. But if you need to access the funds early, you’ll get hit with an early withdrawal penalty. So CDs are best if you can leave the money alone for the full term.
CDs are relatively safe and you’ll earn a guaranteed return on your investment. They’re a great option if you’re trying to reach a savings goal, like saving up for a down payment on a house. Make sure to compare the CD rates, terms and penalties before opening a CD.
7. Invest in Stocks
Investing in stocks gives you an opportunity to earn the highest returns on your investment. A stock represents a small share of ownership in a company, and as the company performs well, the value of its shares increases. But if the company’s stock suddenly drops, your shares will also go down.
This is the biggest disadvantage of buying stocks—the market can be volatile and there’s always the potential to lose money. But stocks have the potential for high returns, especially if you adopt a buy-and-hold strategy and only purchase stocks you plan to keep for a long time.
Best of all, you don’t need much money to begin investing in stocks. Once you’ve opened an online brokerage account, you can pick your stocks and decide how many shares you want to purchase.
If you want to buy a stock that’s outside of your budget, you can also consider purchasing fractional shares. Fractional shares let you buy a portion of stock, so it’s easier to diversify your picks with less money.
For example, let’s say you want to invest in a stock where one share costs $1,000. Instead of spending the entire amount on that one share, you could purchase a fractional share for $200. Just make sure you find a brokerage firm that offers fractional shares since many don’t offer this benefit.
Frequently Asked Questions
How Can I Double $1000?
If your employer offers a dollar-for-dollar match contribution, you can double $1,000 by investing it in your 401(k). Other than that, there’s no easy or risk-free way to double $1,000—you can invest the money in individual stocks, but there will be risks involved. You can also put that money in a high-yield savings account or CD, but your returns will be lower.
What Is the Safest Investment Right Now?
All investments involve some risk, but money market accounts, CDs, and Treasury securities are fairly safe. But these investments offer lower returns than mutual funds or ETFs.
What’s the Best Investing Strategy?
The best investing strategy will depend on your age, financial situation and goals. The best place to start is by paying off high-interest credit card debt and saving up a three- to six-month emergency fund. From there, you can focus on saving for retirement and investing based on your risk tolerance.
