A tiny windfall is pretty easy to spend. If you find $10 or $20 on the street, you can just use it to help pay for groceries or some other regular expense to give yourself just a bit of breathing room in your budget.
A huge windfall – like an inheritance or a legal settlement – can be easy, too. Use it for a huge life purchase, like a house, or stick it somewhere and live off the interest.
The difficulty comes with those windfalls that are somewhere in between. What do you do if you come up with a bonus that’s more than a paycheck, but not approaching a year’s salary?
It’s a question I often get from readers and versions of it pop up with some regularity in the Reader Mailbag. What can I do with a medium-sized windfall – say, $1,000 or so – that actually makes good long-term sense?
Here are twenty five ideas for that very situation, ranging from financial improvement to frugal tactics to property maintenance. Not every situation is the same, of course. Some of these tips won’t apply to you, but there should be enough good ideas here that everyone has at least a few to choose from!
Idea #1 – Eliminate (or Greatly Reduce) a Debt
An outstanding debt – particularly a high interest one – is a constant drain on your financial situation. Whenever you hand cash over to a bank and get nothing in return, it’s not good for you, and the higher the interest rate on that debt, the worse it is.
Take that $1,000 and throw it towards paying off your highest interest debt a little early. You might be able to pay the whole thing off, but at the very least, you’ll knock the balance down a little, which means that fewer interest charges are now being applied to your account. That means less money out of your pocket starting with the very next statement.
Better yet, capitalize on that forward momentum and build a debt repayment plan for yourself. Let this windfall be the first big step on your road to debt freedom.
Idea #2 – Launch Your Emergency Fund
Everyone should have some kind of emergency fund sitting in a savings account at the bank – a lump of cash that they can turn to when everything else goes wrong. Lose your job? You have living expenses for a while. Car transmission failed? You have the cash to just cover the repair bill.
A credit card might be tempting to use in these situations, but credit cards mean more debt, which means more interest payments and money just lost to the bank. Plus, it doesn’t help you in the case of identity theft or if the bank decides to cut your credit limit or if your card is charged up to the limit. Cash is king, after all.
For most people, $1,000 is a great target for a nice healthy emergency fund to start. As you get rid of high interest debt and have more dependents, it’s actually a good idea to have even more than that, but $1,000 is enough to handle most emergencies life will throw at you without tapping the credit card.
Idea #3 – Kick Up Your 401(k) Contributions
If you’ve been afraid to start your 401(k) because of a fear of a slightly smaller paycheck, now’s a great chance to sign up. Take the $1,000 and use it to supplement your paycheck for a while if necessary, but you’ll probably find that it isn’t (unless you contribute way too much).
I recommend contributing 10% of your income to your 401(k), or 15% if you’re over 35 and haven’t contributed anything yet. This is a healthy amount, but it won’t actually reduce your paycheck by that much. Why? The taxes on that money are deferred until later, so you don’t actually owe taxes on the money you put away, which means that a smaller chunk of your check will go to taxes and a larger chunk will go home with you. A 10% contribution will only mean a 6% or 7% drop in your take home pay.
Better yet, some employers offer matching money, which is basically free money for retirement as long as you’re contributing. I like to look at it as an immediate 50% or 100% return on your contributions – something no one should turn down.
Not sure what to invest in? Just choose the target retirement fund with the target date closest to when you plan on retiring – probably between the ages of 65 and 70.
Idea #4 – Open Up a Roth IRA
What if your employer doesn’t offer a 401(k)? In that case, open a Roth IRA on your own. A Roth IRA is a retirement account that you set up yourself and to which you contribute money out of your checking account. Almost every major financial institution offers a Roth IRA program – I personally use Vanguard for mine.
Even if you don’t want to start contributing regularly to that Roth IRA, you can at least seed it with that $1,000 and the put more money in there when other windfalls arrive. A better option, however, is to start contributing a little bit regularly. Even $10 a week or $25 a month can make a pretty big difference way down the road when you retire.
It’s pretty easy to set one up, too. You can do it online at your convenience and get that retirement savings started!
Idea #5 – Kickstart College Savings
If you have children and are committed to the idea of contributing to paying for their college education, it’s quite likely that you’ll always need more money for that expense. College is ludicrously expensive.
You can get started with that $1,000 by putting it into a 529 college savings plan for your child. (There are a lot of different 529 plans – I suggest using this guide to get started.) Doing so will get your child started on the right track and compound growth will cause that $1,000 to become much more by the time your child is ready for college.
Don’t just stop there, though. Start contributing regularly to the 529, even if it’s just $10 or $20 a month. Every little bit helps, and it will build over time into enough to really make a difference.
Idea #6 – Launch (or Add to) Your Personal Investments
What if you have an emergency fund, your debt is in good shape, and you’re already saving for retirement and for college? Perhaps you have other goals in mind for the coming years.
If that’s the case, simply using that $1,000 to bolster your personal investments for whatever your goals are can be a great use for this little windfall. If you don’t already have one, you can easily open up an investing account with a great investment house like Vanguard (again, it’s what I use).
There are endless guides out there to help you figure out what exactly to invest in. My only real advice is to invest in index funds. They have low fees and spread out your risk with the goal of matching the market, which is a pretty good goal.
Idea #7 – Invest in a High-Efficiency Water Heater
Your water heater eats up a surprising amount of your energy bill – as much as 30%, depending on your other energy use and your specific water heater. Moving from an inefficient water heater to an efficient one can trim 10% off of your monthly energy bill permanently. That’s pretty tempting, as it can add up to $100 (or more) in savings per year.
Sounds good? There are two catches. One, an efficient water heater is way more expensive than an inefficient one. A tank-based heater can cost just a few hundred dollars, while a tankless heater can cost a thousand or so. The other catch is that you probably already have a hot water heater that works, and as Consumer Reports says, it’s probably not quite worth discarding a working hot water heater just for an efficiency upgrade.
If your hot water heater is nearing the end of its lifecycle (it’s really noisy, requires adjustment all the time, or so on), using that $1,000 to get a more efficient water heater is probably a great idea. If you have one that’s newer or still in good shape, you’re probably better off just sticking with what you have and finding another use for your money.
Idea #8 – Replace Old Windows
One of the best strategies out there for improving the energy efficiency of your home is to caulk around the edges of your windows, especially when there is cool air seeping around the edges. Still, even that might not be enough, especially when the edges are starting to break down and there’s only a single pane of glass separating you from the cold – or the hot – outdoors.
If that’s the case, replacing windows – particularly in rooms that you use frequently or where the leaks and wear are the worst – can end up really helping your wallet. They can make your home look better (improving the value) and also greatly trim your energy costs.
If you have a sudden windfall and own your home, give your windows an inspection. Are there any windows that have significant problems? Are they energy inefficient? If so, replacing them is a great use for that fresh bundle of cash.
Idea #9 – Attend a Professional Conference or Convention
A professional conference or convention is a great place to firm up your career path. Not only does it provide you with an opportunity to learn about the latest developments in your field, it gives you the chance to meet and build relationships with other people in your field, particularly those who are career-oriented enough to attend such conferences.
Conferences really are a hotbed of idea exchanging, learning, meeting people, and building relationships, all of which are valuable things in your career path. They can give you new directions and ideas, teach you new skills, and help you make the connections you need to further your career.
Yes, they’re expensive, but that’s what your windfall is for. It can pay for your conference fees, your hotel stay, your flight, and your food – or at least a major part of it. Your thousand dollars becomes a ticket to career advancement and improvement.
Idea #10 – Get a Professional Certification
Many career paths rely heavily on certifications of various types. These certifications usually ensure others that the person with the certification has certain skill sets or competency in certain knowledge areas. It’s a great way for hiring managers to quickly find people that have proven their willingness to go the extra mile as well as those skills.
Are you in a career path where certifications are useful? If so, then devoting that $1,000 towards the classes and tests necessary to get that certification is probably a good investment with regards to where you’re heading in your career.
A nice set of certifications can open you up to raises, career advances, and new job opportunities. It can also help your hiring prospects if you need to make changes due to other elements of your life (such as moving due to non-career issues). That’s a pretty good way to spend an extra $1,000.
Idea #11 – Replace Worn Out Items with Long-Lasting Ones
Do you have any key items in your home or your life that just aren’t working very well or are on their last legs? Maybe you don’t have a good kitchen knife or your skillet’s Teflon lining is starting to come off. Maybe your shoes are beat up and on the verge of falling apart.
Whatever it is, use this opportunity to replace that item well. Instead of buying a cheap stopgap solution, do the research and find a replacement for that item that will last for a very long time – hopefully for the rest of your life.
By doing this, you not only have a tool in your life that you’ll be able to rely on for a very long time, you’ve also eliminated an upgrade/replacement cycle in your life. That means a little less time shopping and a little less money spent for a very long time.
Idea #12 – Replace All Lightbulbs with LEDs
LED light bulbs are a perfect example of something that’s uncomfortably expensive up front, but ends up saving you money by the truck load over the long run.
An LED light bulb will cost you at least $10. Compare that to incandescents, which cost you less than a dollar up front. That’s a painful difference.
However, LED bulbs last twenty times as long as incandescent bulbs. They also use about twenty percent of the energy of an incandescent bulb, meaning that over the 20,000 hour lifetime of a LED bulb (meaning you probably break even – or maybe even save a little – on the cost of bulbs, since an incandescent only lasts for 1,000 hours) and given $0.12 per kWh of electricity, you’re going to save $115.20 by using a 12 W LED bulb over a 60 W incandescent bulb – and they have roughly the same light output.
If you replace all of your home light bulbs with LEDs, you’re going to drop several hundred dollars on light bulbs. That can seem painful. However, you won’t change a light bulb again for many years and your home energy bill will drop a noticeable amount. Just buy a bulb to replace every socket in your home, then swap them out as the old bulbs fail.
Idea #13 – Make a Will and/or Durable Power of Attorney
This is the type of task that many people dread. They don’t like thinking of their own mortality and the preparation of these documents pretty much forces you to do it, at least a little bit. However, these are valuable documents to have to protect your loved ones should something unexpected happen to you.
A will is pretty well known – it’s a document describing what you want to happen to your estate in the event of your passing. A durable power of attorney assigns someone to legally act on your behalf – it involves a lot of trust, but it gives that person the ability to step in no matter what kind of things happen in your future.
Both documents are well worth considering, and it’s worth contacting a lawyer in your area to get these documents drawn up in accordance with the specific laws of your state. It can be a little pricy, but it’s something everyone with dependents really should take care of.
Idea #14 – Buy a Good Bicycle and Use It
$1,000 can buy you a very good bicycle and the associated gear you’ll need to keep it maintained and keep it safe. But why would you need one?
For one, it’s a great way to keep in shape. Riding a bicycle is a great form of exercise that you can easily tune to your fitness level. It’s also a great way to reduce your fuel costs when just going around town. A bicycle can easily get you to locations fairly near your home and with a basket on the front it can be perfect for simple errands.
A bicycle can also open the door to new kinds of recreation – short bicycle trips, for example, can be a great way to spend an afternoon in the outdoors while getting yourself into better shape.
Idea #15 – Improve Your Home
Most homes have some sort of outstanding issue that the owners put off because it’s not reached a crisis point yet. Maybe a kitchen cabinet needs replaced or a countertop needs to go. Perhaps you need a new toilet in the downstairs bathroom or a few faucets need to be replaced.
Use that $1,000 and spend a weekend just taking care of these things. Buy a new toilet and replace it yourself. Swap out that faucet. Little projects like that are great for beginning do-it-yourself folks. Larger projects might require help (and a greater expense), but your $1,000 can provide a starting point.
These investments usually recoup themselves when you sell your home. Plus, they improve your quality of life while you live there, and some can help with energy efficiency.
Idea #16 – Launch a Small Business
Many side businesses don’t require a lot of seed money to get the ball rolling. Youtube channels, ebooks, websites, manufacturing businesses and service businesses using gear you already have – in each case, the expenses to get the ball rolling yourself are pretty low.
If you’ve ever thought to yourself that you should just try launching a side business, use that windfall and use it as seed money for your idea. Just put it out there and see what happens. Keep adding to it and trying new ideas.
Maybe it won’t click. If that happens, it’s okay – you haven’t devastated your finances to give it a try. However, there’s a good chance that it will take off and be a real success and that can change the parameters of your life.
Idea #17 – Get a Home Energy Audit and Follow the Recommendations
A home energy audit simply means that someone comes to your house and examines it, looking for ways where you could be consuming less energy (and thus have a smaller energy bill). Many energy companies offer this service, some for a small fee and others completely for free.
Usually, energy audits do a great job of pointing out several things that you personally could be doing to reduce your energy costs. Apply your $1,000 to the strongest of these suggestions.
What happens then? Your energy bills drop, period. Each month, as you pay less on your energy bill, you have more breathing room in the rest of your budget.
Idea #18 – Get a Term Life Insurance Policy
If you have children and you don’t have a term life insurance policy on yourself that lasts until after they’re grown, you’re not taking care of those children. They will need that money should something happen to you.
Term life insurance can be expensive, but if you take this windfall and set it aside to pay the premiums of your policy, you’ll be able to cover that policy for a very long time.
While it might not be the most romantic idea for your money, it is incredibly thoughtful and considerate of the people who depend on you every day and it will help you sleep a little better at night.
Idea #19 – Donate
If the other ideas on this list aren’t clicking with you, consider donating the money to a good cause. There are many causes out there that could really use that money.
In your own community, you can give to charities such as the local food pantry, which puts nutrition in the hands of people who struggle to put food on the table for their families. You can donate it to organizations that work with the children of your community, giving those children great new opportunities and experiences.
Beyond that, the opportunities are limitless. There are nearly more great charities out there than there are stars in the sky, from programs like Habitat for Humanity that build nice homes for low income people to Doctors Without Borders which is fighting Ebola and other diseases directly at the source.
Find a charity that clicks with you and donate. It’ll make you feel good and make the world just a little bit better.
Idea #20 – Pay for Next Christmas
If you ever find yourself cringing at the costs of the holiday season, your windfall can make that financial pain go away. Just sock away the cash in a savings account and use it to pay for Christmas for the next year or two.
Maybe you travel for the holidays – the windfall can buy a plane ticket. Perhaps you just need help for gifts, or have something special in mind as a gift this year. That windfall can make those gifts work out perfectly.
Best of all, it lets you sleep a little better at night right now because Christmas isn’t coming down the pike and it’ll help you sleep a little better after the holidays because you won’t be flooded with bills.
Idea #21 – Pay for (Part of) Your Next Vacation
A $1,000 windfall can pay for a nice part of a summer vacation. It can cover several nights of hotel stay and the cost of driving to a destination. It can also pay for a domestic flight and a few nights in a hotel there.
In fact, this summer, we’re planning on a rather long camping vacation for the five of us and our budget comes in well under $1,000.
Maybe you’d just like to take a few weekend getaways. That windfall can make for two wonderful weekend getaways, with two nights in a hotel, some amazing meals, and some shopping and entertainment during those weekends.
Perhaps you have a bigger vision in mind. Perhaps you normally take a $1,000 vacation, but this windfall could turn that into a $2,000 vacation – a longer one or a more luxurious one.
If you want to get away, $1,000 can certainly make that happen. It might not be the most financially responsible choice, but a bit of travel is really the spice of life for some people.
Idea #22 – Insulate Your Attic
Have you ever looked up at the roof of your home and noticed that there are spots where snow has melted while other spots are still covered? Are there huge icicles hanging off of the gutters? Are the gutters full of ice? If so, your attic probably needs more insulation.
The cost of insulation can be surprising, but it’s actually a pretty straightforward home improvement project. Here’s a great guide from This Old House.
How does this benefit you long term? It helps extend the life of your roof. It definitely keeps heat from escaping through your roof, which helps greatly with winter energy bills. It even helps in the summer (think of a cooler with the lid off – the ice melts faster, doesn’t it?).
Idea #23 – Take a Class or Two
If you live near a college or university (and almost everyone has some sort of institution fairly close to where they live), consider taking a class in a topic that you’re interested in or one that might help you with your career. A single course, particularly at a state university or a community college, can easily be enjoyed for $1,000.
What does that class get you? It sates your curiosity. It teaches you something new. It might awaken a new passion or career direction within you. It reinforces transferable skills of information management and time management.
More than anything, though, taking a course keeps your mind active. An active mind is a vital tool in the modern world. It will help you in many ways you see and even more ways that you don’t.
Idea #24 – Start Saving for a Big Future Goal
Perhaps you live in an apartment and dream of owning a home someday. Maybe you drive an old junker and hope to switch to a late model used car in the future. Maybe you’re hoping to buy a rental property in the next few years.
Whatever your goal, dropping your windfall directly into savings for that goal can feel like real progress toward the future that you’re dreaming of.
If the goal is actually pretty close – in the next year or so – a savings account is a good place to save. If your goal is further out, you can mix up the savings depending on your risk tolerance. Whatever you choose, the most valuable part is the saving – simply putting that money aside is the biggest step you’ll take.
Idea #25 – Maintain Your Home and Automobile
Good maintenance is the key to appliances, cars, and homes that last for a long time. Without regular maintenance, things will break down and things will have a shorter lifetime. Those things will cost you a lot of money and give you a lot of headaches.
The best thing you can do is to adopt a home and automobile maintenance schedule. Here’s a great maintenance checklist for both your automobile and home. You can also find a great checklist for your car inside of your auto manual.
You’ll find that many maintenance items require a few tools and some supplies, so invest your money into getting those key tools and the supplies you need to maintain things. If you do this, everything you own will last longer and work better, which will constantly save you money.
There are many, many ways to take a thousand dollars and turn that money into something greater in your life. You can amplify that money through the savings it produces over the long haul. You can use it to improve or secure some aspect of your life. You can put it away for a better future.
Whatever you choose to do with it, as long as you give it some thought first instead of splurging instinctively, you’ll likely make a smart choice. Good luck!