Having an extra $1,000 in your bank account can seem like a small windfall that can easily be spent. A quick vacation, expanded wardrobe or a few fancy dinners out can deplete that extra $1,000 in a few months.
But long-term savings can turn that extra $1,000 into thousands more, protecting you in retirement, as an emergency fund or as a down payment on a car or house.
I’m focusing on this extra $1,000 figure because it’s roughly the amount I wrote about recently that could be saved by making coffee at home. The annual savings was $1,077.12, to be exact, for one person, and $2,154.24 per couple.
I asked financial experts, mostly financial planners, for their ideas on what to do with that extra $1,000 to $2,000 other than spend it.
Try automatic transfers
The trick, however, is to put aside that extra $1,000 or so saved each month by making coffee at home. As anyone who has tried to save money probably realizes, any savings from eliminating an expense can easily get lost in your checking account and be spent elsewhere. But automatically transferring $90 a month to a savings account or some other account will easily get you to that extra $1,000 annual total.
And $1,000 can be just the start. For a couple, saving $167 per month will add up to $2,000 in a year.
If you have a federal tax refund coming, you could put it all into savings and start earning money on it immediately. The average tax refund is around $2,500, according to the IRS.
What to do first
Each person’s financial situation differs, but there are some first steps to take with that extra $1,000-$2,000 before saving it, says Kate Holmes, a certified financial planner:
- Pay off credit card debt first, and put the extra money you’re saving toward the principal.
- Boost your 401(k) retirement plan savings if you’re not already taking full advantage of your 401(k) match. Then you won’t have that money in your take-home pay to tempt you as you pass coffee shops!
- If you’re saving for a big trip or fun adventure, set up automatic transfers to savings each month to supercharge that account.
- Look at each line item in your expenses and ask how much happiness it brings, Holmes says. You may find other areas to easily cut back, freeing up more money for your “maximum happiness” items.