Since we work so hard for the money we have, many of us dream of what we would do if we ever were handed free money, like winning the lottery or getting a big bonus at work. But what would you really do if someone handed you $5,000? Since it's free money, many of us would indulge in something we've been daydreaming about. A trip to Paris. That flat screen TV you've been eyeing. Season tickets for your favorite team.
While it can be fun, spending all your free money on something extravagant is a flash in the pan, a fleeting moment. You may not get free money like that again, so why not spend your free money to save some real money? Investing your windfall into the right financial situation can actually make you more money in the long-run, which means you'll have that money for a trip to Paris AND the flat-screen TV. Here are a couple ways to invest your money to get more money back.
Give the Money to Your Future Self
Putting the money toward your retirement may sound like the most boring way to spend the money, but it can be an easy way to earn a lot more cash and maybe even retire early. Does your company offer a retirement match program? If so, the smartest thing to do would be to invest the $5,000 to that program. That's a free $5,000 you will make. Just make sure to know how much the company matches each year and only contribute that much.
You can also open an IRA to help supplement your 401k for your retirement. If you sign up for a Roth IRA, you won't be taxed when you withdraw that money in retirement, since you are contributing from your yearly income, which is already taxed. Tax rates will undoubtedly be higher in the future, so contributing to a Roth IRA now can save you money in the future.
Pay Off High-Interest Debts
While spending free money on something fun is more exciting, paying off your debts can give you a more long-lasting peace of mind, especially high-interest debts. If you have a large amount of credit card debt, or even any credit card debt, you are probably paying a pretty penny in interest. The higher your debt, the more interest you are paying. And if you are only paying the minimum amount every month, you are pretty much just covering the interest charged, making paying off your debt a very lengthy process. If you pay off $5,000 of your credit card debt, it will bring the interest rates down and make it easier to pay off the balance.
You could also sign up for a balance transfer credit card to help alleviate the stress of interest. Most balance transfer credit cards offer a 0% intro APR on balance transfers, which means you won't have to pay interest on your debt for up to a year and a half, making it easier to pay down your debt. Here's a good list of the best balance transfer credit cards.
Make Money Off the Interest
The most direct way to make money off of the $5,000 is to invest it. The easiest way to do that is to put the money into a savings account or a CD. If you are considering this route, look at an online bank. These banks don't have physical branches, which means they don't have a lot of overhead costs, making it easier for them to offer higher APYs than traditional banks.
If you want to make a bigger return on your investment, look at investing in the stock market. You don't have to put your money in a high-risk stock to make money. You can invest in things like fixed annuities or money market accounts. If you don't know anything about investing, talk to a financial advisor or find a site that specializes in educating newbies on investing. Here are some of the best sites for beginners.
Now, we're not saying that you shouldn't spend a little bit of the $5,000 to have fun. Get a spa treatment. Go away for the weekend. Just remember to invest as much as you can into your financial future, and it will pay you back.