Although a year's worth of Starbucks or a week in Disneyland might be fun splurges, if you're truly looking to put an extra $1,000 to work, one of your smartest options is to invest it.
Never underestimate the power of compound interest: $1,000 invested today will more than double over 10 years, growing to $2,225 with an 8 percent rate of return. Put away that much every month and it will only take you 25 years to become a millionaire.
Monthly contributions of $1,000 may be out of reach for you, as they are for the majority of Americans. But if you do have an extra grand now, you can use it to jump-start your retirement savings by contributing to an employer-sponsored 401(k) plan and taking advantage of any company match. Or you could put it in a Roth IRA or traditional IRA, both of which are individual retirement accounts that offer tax advantages.
If you're among the 69 percent of Americans who have less than $1,000 in savings, you can use that iPhone money to pad your emergency fund. Most experts recommend building up three to six months' worth of living expenses in a rainy day fund, but some say it's smarter to have between eight months and a year's worth of cash in the bank. Either way, an extra $1,000 is sure to help you get started.
This is an update of a previously published article.
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