Got $5,000 burning a hole in your pocket? We’ve compiled a few ways you might spend your cash — and truly benefit in the process. Earn an instant 20% return If you’re saddled with credit card debt, pay it off before you think about anything else. While you might hope to earn 10% per year on your investments, you could be forking over 20% per year in interest on your credit card. If your interest rate is 20% — somewhat high, but certainly not unheard of — paying off $5,000 of debt could save you $1,000 in interest this year….
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Got $5,000 burning a hole in your pocket? We’ve compiled a few ways you might spend your cash — and truly benefit in the process.
Earn an instant 20% return
If you’re saddled with credit card debt, pay it off before you think about anything else. While you might hope to earn 10% per year on your investments, you could be forking over 20% per year in interest on your credit card. If your interest rate is 20% — somewhat high, but certainly not unheard of — paying off $5,000 of debt could save you $1,000 in interest this year.
And with credit card issuers like Commonwealth Bank of Australia (ASX: CBA) ,Westpac Banking Corporation (ASX: WBC), Australian and New Zealand Banking Group (ASX: ANZ) and National Australia Bank (ASX: NAB) taking steps to make sure they limit their credit exposure, getting your debt under control is more important than ever.
That $5,000 can give you, your spouse, and kids a nice holiday to remember. If it’s just you, perhaps with a significant other, your money will go even further — and so can you. Fancy a new US$399 Apple iPad, or a US$40 pair of Levi jeans? With the Australian dollar buying more than US$1, a shopping trip to the United States might be in order.
Give it away
We’re serious. You can do considerable good by strategically donating that $5,000. Even giving away $1,000 of your stash will make a big positive difference, plus giving you a potential tax deduction to boot.
Renovate your home
Spending money on your house can give you better living now, and more money when you sell. Most renovating projects could see you recoup much of what you spend, by fetching a higher price come sale time.
With around $5,000, you may be able to install solar power (which will reduce your power bills), landscape the garden, get your house painted, or update your bathroom or kitchen.
If you’d rather not remodel your home, why not remodel yourself? You could learn a new skill or a new profession by going back to school.
These days you can take a course preparing you for anything from a human resources management certification to becoming a forensic nurse, and many of them are available through distance education, if you can’t physically get to the classroom.
In short, $5,000 isn’t just a bundle of cash. It could be your ticket to a better home, a better nest egg, or even a better life.
If you’re one of the many millions of people whose retirement savings are woefully behind schedule, investing your windfall could be a truly smart move.
If that $5,000 gets invested in a broad-market index fund, and earns the market’s historical average (never guaranteed, of course) of around 10% per year, in 30 years it will grow to more than $87,000 (although inflation will reduce the spending power of this amount).
If you withdraw 4% of that each year in retirement, you’ll be getting about $3,500 each year — all from a one-time $5,000 investment. Plonk it into your superannuation fund and your money can grow beyond the reach of the taxman. Of course, investing in high dividend yielding shares means you may not have to withdraw your money at all.
Individual shares could give you even better returns. Opening a cheap online brokerage account with that $5,000 could get you started on the right track toward turning that seed money into a serious stash.
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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool ‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
A version of this article originally appeared on fool.co.uk. It has been updated by Mike King.