If you suddenly came into $1,000 what should you do with it? Should you save the money or just spend it?
Extremely low interest rates
Interest rates are very low these days. I’ve seen ads for one-year certificates of deposit with interest rates of 1% to 1.25%. Unless you could find a fairly conservative investment paying 5% or better, there may be other, better things you could do with that $1,000.
Other options
If you were willing to take more of a risk with that $1,000 you could buy gold or silver. Gold has actually gone down in price over the past six months – from a high of $1790.38 an ounce to today’s price of $1614.70 – which represents s loss of bout $176 an ounce. This means now might be a good time to buy gold as it may well go up in value over the next year. Of, course, at $1,614.79 an ounce, you couldn’t even buy an ounce with that $1,000.
Buy something that would appreciate in value
A third alternative use for that $1,000 would be to buy something you believe will appreciate in value. This could be rare stamps or coins or even baseball trading cards. However, before you invest in any of these, be sure to do your research so you can be sure they will actually grow in value . However, this will only be over the long term. I saw one baseball trading card that sold recently for more than $100,000 but was almost 100 years old.
Pay off debt
If you have high interest credit card debt (10% or higher), a better use for $1,000 might be to either pay it down or pay it off entirely – if $1,000 would be enough to pay it all off.
Comparing the two
Let’s suppose you owed $1,000 and were paying it off at the rate of $100 a month on a credit card with an interest rate of 18%. At the end of that year you will have paid $1,090.75 or about $91 in interest. As you can see, this is much more than you could expect to earn if you were to be very conservative and just buy a CD at 1.25%.
Don’t just spend it
To get back to the original question, should you save or spend that $1,000, the real answer is that there aren’t just these two alternatives. You could save the money, invest it, buy something that will appreciate in value or use it to pay down debts. However, the one thing you probably shouldn’t do is spend it. If you were to buy something for $1,000, it might feel good for a while but how will it feel a year from now? Will you still be glad you spent that $1,000 or will you have buyer’s regret and wish you had done something more worthwhile with the money?