The best investment option will vary according to personal financial circumstances and preferences. If $5,000 is the sum total of somebody’s life savings they are likely to prefer investing it in a secure fund even though the rate of return is low. Someone else who feels able to take more of a risk is likely to prefer a high earning although less secure investment. Using this money to clear debts or pay for schooling is also a good idea.
1. Paying Off Debts
When a responsible person finds themselves with a spare $5,000 their first priority should be to pay off any debts they have accrued. This is not only an issue of doing the decent thing but it is very much in the debtor’s self-interest. Paying off debts on credit cards leads to improved credit ratings. With a good credit rating it becomes much easier to get mortgages or automobile loans on good terms.
It is also highly recommended to pay off student loans from the government to forestall any legal actions to recover the amount owed. The importance of reimbursing family and friends for money borrowed previously is hopefully so obvious that it hardly needs stating but sometimes these responsibilities get forgotten.
2. Revenue earning investments
Before parting with any funds the investor must have made up their mind about the level of risk considered acceptable and how quickly they might need to access their money. Someone who is able to make a long-term investment should consider solid, dividend earning stocks. Earnings on investments in the stock market have average at around ten percent over recent years which compares very favorably with bank interest rates.
Following the old adage about not putting all your eggs in one basket it is recommended to invest in an exchange traded fund (ETF). These funds spread their investments over different stocks and bonds. They offer investors low administration fees while delivering a reasonable return and good level of investment security. It is worth consulting with a financial expert to get recommendations for a particular EFT.
Someone who wants quick access to their invested funds is advised to consider putting them in an online savings account. The interest rates are as low as 1% but this is more than some banks offer, and the online accounts don’t have early withdrawal fees.
3. Starting a Business
Now that extra funds are available this could be an ideal time to start that business you have been planning on launching for years. While in many cases this is going to require additional investment there are still plenty of business ideas where this sum should cover most if not all the costs. Service-focused and online businesses can usually be got off the ground with a very moderate investment. For example, $5,000 would cover the costs of setting up a website to market some service you can provide, or a crafts product produced at home.
All businesses carry the risk of losing a part of or even the whole sum invested but whoever has a good idea with commercial potential will not get far unless they are willing to face some financial risks.
4. Investing in Education
Paying for a kid’s college education, or for your own further education, is another way this $5,000 can be put to productive use. Given that the cost of some university courses can run into six figures this sum might not go far, but there are alternatives. One popular option is to put this money into a 529 plan for a young child. These college savings plans invest in funds according to the parents’ wishes and they also offer valuable tax advantages. The money can be taken out when the kid is ready to start college.
The father or mother might also want to use this $5,000 to pay for the costs of a course that could give them a higher qualification leading to a better salary. This would also help them eventually pay for their child’s future college expenses and other matters important to them.
5. Investing in Making the World a Better Place
Money invested in savings schemes and businesses can always be lost. An investment in college studies can also be lost if for some reason the student doesn’t continue. One investment that a person can never lose is money used to make life better for someone else. A person who doesn’t have debts to pay off, and has no real need for the modest return $5,000 brings, is able to do a great deal of good with this money.
Consider investing this money in the education of a child in an underdeveloped or war-torn country. Financing the expenses of training a guide dog to provide mobility for a blind person or helping pay for food and clothing for local homeless people are a few more of the countless charitable possibilities. The money goes but the satisfaction from the way it was well used lasts forever.