5 smart things you can do with $1,000 right now

family savings

Whether it's a bonus, an inheritance, or an unexpected gift from your long-lost aunt, $1,000 can go a long way toward helping you achieve some of your financial goals. Before you blow that cash on a vacation or fun but ultimately unnecessary gadget, consider the following ways you might use that money to better your financial picture as a whole.

1. Establish or increase your emergency fund

We're told we're supposed to have enough money in savings to cover three to six months' worth of living expenses, but many of us aren't even close to hitting the low end of that range. A study by the Federal Reserve Board reveals that almost half of Americans don't have the money on hand to cover a $400 emergency. Rather, they'd need to sell something or borrow the money to come up with that kind of cash on the spot.

If you're behind on your emergency fund or don't have one at all, the best thing you can do with your newfound money is to put it away in an accessible bank account. Otherwise, you risk taking on debt, lowering your credit score, and wasting money on interest when the unexpected strikes. Case in point: Borrowing $1,000 at 18% interest will wind up costing you $1,200 if it takes you two years to pay it back -- and that assumes you can even get a loan in time. Better to have the money on hand so it's there when you need it.

2. Prepare for a new baby

According to a USDA report, the average middle-income family can expect to spend a whopping $12,000 on child-related expenses during a new baby's first year of life. If you have a little one on the way, $1,000 can help cover some of those costs.

Furthermore, if one of you is planning to leave your job once the baby is born or take a few months of unpaid maternity or paternity leave, you'll be facing a drop in income at a time when your expenses are only going up. That $1,000 might ease the financial burden that could ensue once your child arrives.

3. Save for retirement

It's never too early to start thinking about retirement, and the sooner you do, the more time you'll give your money to grow. Or, to put it another way, if you wait too long to start saving for retirement, you risk coming up short financially as a senior, and that's not a situation you want to be in. An estimated one-third of Americans have no retirement savings whatsoever, many of whom are 55 and older.

If you put that $1,000 into a retirement account and invest it in stocks that generate an average annual 8% return, after 40 years, you can grow it into almost $22,000. Even if retirement is only a few years away, any last-minute contributions you make will come in handy once you're no longer working.

4. Start a college fund

We all know that college is expensive, but here are some sobering numbers for you. For the 2015-2016 school year, tuition cost:

$9,410 for a public four-year in-state college

$23,893 for a public four-year out-of-state school

$32,405 for a private nonprofit four-year college

And remember, these figures apply to tuition alone; the dorm experience will probably set you back an extra $10,000 per year. Though $1,000 may not seem like enough to make a huge dent in the cost of a college degree, every little bit helps. Furthermore, that money may go further than you think if your child is still years away from college. If you invest $1,000 and earn an average annual 6% return (which is a reasonable return for a 529 plan), you can double it over the course of 12 years -- which will, at the very least, buy your future student a whole lot of textbooks.

5. Share the wealth

If you're in a decent financial position and are already saving nicely for emergencies, retirement, college, and the like, you might consider donating $1,000 to your favorite charity. Not only will you be helping others, but you'll get to deduct that amount on your taxes provided you donate to a registered organization, obtain a receipt, and itemize rather than take the standard deduction.

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While you may be tempted to spend your newfound money on something fun, you're far better off using it responsibly. Missing out on a little instant gratification is worth the peace of mind that comes with doing what's right for your finances.

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