Do This Now — Once You Save $1,000

The late Mac Miller once sang, “I knew my life would change, all I needed was one hundred grand.”

I think a lot of us can relate. We hope one hundred grand falls into our laps and then all of our problems will go away.

This is called a “winning the lottery” mindset. But a quick spoiler alert, it doesn’t work. In fact, a YouTuber put one million dollars into the lottery and WON… nothing. He actually lost over $200,000.

The answers to your financial problems are already sitting in your lap if you have $1,000. Today let’s break that grand down and turn it into one hundred grand.

1. Pay Off Your Debts First

OK, let’s get the miserable one out of the way first. Paying off your loans and credit debts is crucial to getting wealthy.

The average stock market return for 10 years is 9.2%, according to Goldman Sachs data. The S&P 500 has done slightly better than that, with an average annual return of 13.6%.

However, investing is always a risk, so going in with substantial debt could ruin you if you’re not careful. Prioritize your debts first, don’t let the financial ball and chain follow you around forever.

2. Generate Interest

Save your money in a high-yield safe account. These accounts offer higher interest rates than traditional savings accounts and almost always offer better returns than checking accounts.

Here are a few of the best I found on Bankrate:

• Citibank — 0.70% APY
• Vio Bank — 0.66% APY
• PNC Bank — 0.65% APY
• Popular Direct — 0.65% APY
• Salem Five Direct — 0.61% APY

3. Save — But Saving Too Much Hurts You

We all need emergency funds just in case shit hits the fan. No one wants to be one of the 59% of Americans who can’t cover a small $1K emergency expense. Furthermore, the last thing you want to do is pull money from your retirement accounts.

However, saving could be burning a hole in your bank account. The reason being your savings may not grow fast enough to completely offset inflation rates.

FOR EXAMPLE:

Say we take our $1,000 and deposit it in a savings account with a 0.09% annual percentage yield (APY), which was the national average in 2019. That banks you 90 cents in interest.

However, the inflation rate is close to 1.2% in 2021. This means you just lost $11.10 due to inflation, even though you accrued interest.

Furthermore, the Federal Reserve is printing money at an unprecedented rate. This means inflation is only going to get worse. Hold onto your emergency fund, but there are better ways to nurture your money.

4. How to Invest Conservatively

There are several ways to invest with little risk to your money; most of them are geared towards long-term investing.

One way is investing in bonds. I don’t invest in bonds, but if I did, I’d invest in the Vanguard Total Bond Market ETF (BND). BND holds more than twice the total number of bonds with almost 18,000 total positions.

Bonds have an inverse relation to the stock market, which means they usually perform better when the market is down. Municipal Bonds are another option which is where the government borrows your money, and this investment is tax-free.

Roth IRA’s — Become a Millionaire When You Retire

Roth IRAs offer a unique tax advantage when compared to a 401(k): You can withdraw your money in retirement tax-free.

That means, your money will be growing 5–7% annually, and you can withdraw every penny tax-free when you’re older. Furthermore, because of compounding interest, the more money you contribute the more you make.

Important to note: You’re only allowed to invest $6000 per year if you’re under 50 years of age ($7000 if you’re over 50). This means you could invest $500 a month to max out your earnings.

Assuming you earned a 6% return, it would take you a little over 41 years to hit the million-dollar mark if you maxed out. And if you only earned 5%, it would take you about 46 years to get there.

Use this guide to find the best Roth IRA account for you

Lastly, consider investing in these conservative exchange-traded funds rated by Morningstar as low or average for risk relative to their asset category. Pay attention to the dividend yield rates which are far superior to high-yield savings accounts:

• iShares Core High Dividend ETF — 3.5% yield, 0.12% expense ratio
• Pimco Total Return Active ETF — 3.3% yield, 0.57% expense ratio
• Vanguard High Dividend Yield Index ETF — 3.1% yield, 0.09% expense

5. How to Invest Aggressively

I’m young, so I love investing aggressively. It gets my blood pumping. However, we won’t be talking about “Get rich quick ideas” like penny stock investing or day trading. We’ll save that for another day.

With my $1,000, I would look into tech stocks.

Think about it. You don’t even have to be financially savvy to know that people like Jeff Bezos and Elon Musk are changing the world.

Yes, Amazon’s stock price is crazy high — currently over $3,000 and rising. But Tesla is dirt cheap priced around $600. Furthermore, what’s stopping a company like Amazon from growing, even at its absurd price point?

Do not let the MBAs and Wall Street sharks intimidate you. Investing in stocks starts off by placing money into companies you know and trust. I invest in Tesla because I trust Tesla. I invest in Etsy because I like shopping on Etsy.

This isn’t rocket science.

Finally, let’s talk about dividends. Fellow Yard Couch editor Cody Collins broke dividends down for me recently. Dividends are regular payments of profit made to investors who own a company’s stock.

Dividends are great during market crashes or rough patches.

They’re a nice hedge against inflation. The VYM (Vanguard High Dividend Yield ETF) is a dividend I personally invest in. This stock pays me money regardless of the share price and will continue to pay me for the rest of my life.

Takeaway

There are so many ways to invest $1,000, but these are a great place to start. The most important investment you can make, however, is in your own financial literacy.

The Wall Street Journal is on the higher end at $22 per month, but other top financial websites like CNBC, Forbes, MarketWatch, and The Motley Fool are all free. Use these informational powerhouses to your advantage.

Learn a little more every day and watch your money grow.