It is hard to call $1,000 a big sum of money, but it is still a good beginning. Even though it won’t play a big role in your future years, it is a chance to start working on your saving and investing habits.
After all, everything big starts small.
Start IRA or Roth IRA
What is a Roth IRA? It is an individual retirement plan that became one of the most popular retirement options in the United States. Comparing to traditional IRA, Roth IRA has a couple of tax benefits. In particular, Roth IRAs are funded with after-tax dollars, which is why the contributions are not tax deductible. At the same time, qualified distributions are tax and penalty free when you start withdrawing funds. Traditional IRAs offer the following – contributions are made with pretax dollars, which is why you will need to pay income tax after you retire.
In such a way, the difference is that IRAs allow you to take a tax break while you are building up your savings, and Roth IRAs give you a tax break when you start using what you have built.
P.S. Why not employer sponsored 401(k) retirement plan? Because both traditional IRA and Roth IRA will allow you to have more control over your money.
Your kids’ college education
All parents want to give their children an opportunity to be happy and successful when they grow up. One of the paths to this life is to provide them with good education.
For your reference: the costs for college tuition has increased by 5.2% over the past 20 years. As a result, many talented students simply don’t have an opportunity to afford to study.
In the United States, the most popular option to invest in your kids’ education is to open a 529 college savings plan. Taking into account state sponsorship and tax advantages it offers, it is a really good solution. After all, there were 12.5 million active 529 accounts in the United States at the end of 2015.
In such a way, even though $1,000 is a small beginning, it is still a beginning.
Get rid of your debt
Although this investment strategy seems to be too obvious to mention, many people ignore it. Many would say that paying off a debt is not an investment at all and it actually makes sense. After all, having a debt is more costly than an investment is profitable. And still, to pay off a debt means to invest into not paying the interest, and that’s exactly what makes debt redemption such a wise decision.
There are two ways you may organize your debts. The first option is to start from the smallest one and leave the biggest debt until later. It is a psychological trick as quick results will increase your motivation. The second option is to start from paying off the debt with the highest interest rate as this will save you some money.
It is a great option if you are a do-it-yourself person. There are two basic advantages. The first one is that you don’t need much to start – your trades may be as cheap as $25, which makes online trading platforms a good option for small investors. Secondly, it is unnecessary to be an economist or financial expert as there are many choices for beginners.
One of such choices is Glenmore Investments. The advantage is that traders always know in advance how high their potential profits and risks are, which gives them an opportunity to entirely control the process.
One more advantage is that HFT allows traders to apply the principle dividend reinvestment plans (DRIPs) work on – a part of earnings is usually withdrawn, while another part is reinvested to build up future profits.
No matter how stable you think your life is, you cannot be sure it won’t bring you any financial surprised in a couple of days or hours. Anything may happen, starting from comparatively small troubles like dental emergency or unexpected home repairs to big ones like job loss or an unplanned move to another house.
$1,000 is a good sum to start from. Still, you will need to decide where to keep it. The key requirement to an emergency fund is to make it easily accessible. In view of this, it would be wise to consider to start either a saving account, or money market account, or to invest in short term certificates of deposit.
Any of these options will give you the liquidity you need and will still bring some interest.
In such a way, $1,000 does not appear to be much to invest, at least until you consider the rewards this sum may bring in the future. Little by little, a little becomes a lot, after all.