The Best Way to Invest 1000 Dollars

By Jodi Furman, eHow Contributor

There's really no wrong way to invest money; the mere fact that you are investing at all is great. But some investments are better than others, as they'll make that money go that much farther or grow that much faster. Don't overthink it or get stuck in "analysis paralysis," just make a decision and go with it.

Ehow asked Jodi Furman of the award-winning blog, LiveFabuLESS.com (Link below) to provide readers with the best ways to invest $1,000.

Furman has taught millions of readers a modern and doable way to live an upscale life without the price through her blog and TV appearances. She has an MBA from Columbia Business School and is a married mom with three young kids plus two dogs and two cats.

Step 1: Pay Down High Interest Debt

Technically, paying down debt isn't an investment. However, if you have any debt, especially high interest debt, paying that down will have an instant and immediate return on your investment. For most people, the highest interest debt is almost always credit card debt. Putting $1,000 toward your credit card this month will not only decrease your outstanding debt, it will also lower your monthly minimum payments moving forward. Since your credit score is partially derived from your credit utilization, lowering your outstanding balance should also increase your credit score.

FabuLESS Tip: If you have good credit and a solid repayment history, ask your credit card company if it can offer you a lower interest rate on your outstanding debt. If it declines to do so, you may want to consider transferring your balance to another credit card, one that will offer you a lower interest rate, even if there are transfer fees involved.

Step 2: Put it Toward Retirement

If you have a 401(k) through an employer with a company match, and you've already paid down your high interest debt, this is where you should put your next available dollars. If your employer matches your contributions dollar for dollar, you will instantly double your investment, and it will continue to grow, tax deferred. Even with just a 50 or 75 percent employer match, that's an instant return that is nearly impossible to beat -- even after with a decade or more of solid, compounding growth.

As an added bonus, a $1,000 contribution to your 401(k) will result in less than a $1,000 decrease in your take home pay because 401(k) contributions are made with pre-tax dollars. Plus, contributing to your 401(k) will also reduce your taxable income.

A few things to bear in mind: You can't deposit money into your 401(k) account as you would to a regular account, nor can you deposit a lump sum. You will need to adjust your 401(k) contribution level though your company. Contributions must be deducted directly from your paycheck, not transferred from a bank account.

Even though you won't be able to directly deposit the $1,000, there is a simple way to handle the investment. Once you've determined what the effect is to your take home pay, use the $1,000 to supplement your income in lock step with how much is deducted from your paycheck. Once you've hit $1,000, adjust your 401(k) contribution level back to its previous level.

If you don't have a 401(k) to contribute to, if your company doesn't match your contributions or you've already contributed to the point of the match, then your next best option, if you qualify under the income requirements, is a Roth IRA. Roth IRAs start to phase out at $110,000 for single and head of household filers and $173,000 for married couples filing jointly.

Roth IRAs are simple to set up and fund. It can be done at almost financial institution or discount broker. You may contribute a maximum of the smaller of $5,000, or the amount of your taxable compensation per year, if you're 49 or younger. You may contribute a maximum of the smaller of $6,000 or the amount of your taxable compensation per year, if you're age 50 or older. Roth IRAs are funded with after tax dollars, but they grow, and are disbursed, tax free. Additionally, you can deposit a lump sum -- such as that $1,000 -- all at once. You can remove the capital, the amount that you originally invested directly, without penalty.

Step 3: Emergency Fund

If you don't have at least three, and preferably six or more, months' income saved in a liquid account, consider contributing a portion of your $1,000 toward an emergency fund. When it comes to an emergency fund, keeping your capital safe and accessible is the primary goal; interest income is merely a bonus. Consider an online bank that offers higher interest rates than most local banks or credit unions but is still FDIC insured.

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