12 Smart Ways to Turn $500 Into a Better Future


Do you have a little extra money you don't know how to spend? Maybe you've been tweaking your budget so that you now have $500 saved. Or perhaps you've just received a nice little tax refund, or you've been saving your $5 bills for a while and realize that they add up to the equivalent of five Benjamins. What do you do now? (See also: 5 Savings Tricks You Haven't Tried)

You've worked hard to save that money, so you want to put it to good use. You might think it's not enough to really invest in anything useful, but nothing could be further from the truth. A smart investment of your $500 could reap some very big rewards. So the next time you're wondering what to do with a spare $500, plan on doing one of the following.

Traditional Investments

Yes, $500 really is big enough to invest in stocks and bonds, whether via a retirement account or a brokerage account.

1. Contribute to Your Retirement Account

The $500 you put into your 401(k) or IRA today will grow to over $8,700 in 30 years, assuming a 10% yearly interest rate. If your employer matches your contribution and you have not yet reached the matching limit, then your $500 will be worth even more.

While you're at it, adjust your monthly contribution to your 401(k) up by $42. That equals an additional $500 per year, and you'll never miss the money from your paycheck.

2. Consider an Exchange Traded Fund

If you already have an IRA or brokerage account, then you could use it to purchase a commission-free, indexed ETF. These investments are like mutual funds, in that they have a variety of assets within each ETF, but they trade like stocks. They also have lower expense ratios than mutual funds. Since $500 is a low investment to start, you will want to find an ETF that does not charge a commission and that keeps its expense ratio very low.

3. Invest in the Stock Market

If you already feel like you're on a good path with your retirement account, you might try your hand at stock investing with your $500. Stocks are risky assets, but that also means they offer the greatest opportunity for big returns.

However, since nearly all brokerage accounts (which you have to have in order to play) charge a fee per transaction, it does not make sense to try to buy and sell your way to wealth. Instead, choose a stock that you can purchase and "forget" about. Ideally, you'll want a large company that you can rely on for decent growth and whose stock pays dividends. (See also: Getting Started With Index Funds)

4. Make a Peer-to-Peer Loan

Peer-to-peer lending allows borrowers to qualify for loans at rates that they generally would not be able to see from banks, while the lenders are able to invest smaller amounts and get higher returns than they could find elsewhere. In addition, investors in peer-to-peer lending are not charged fees, so your entire $500 can go toward growth.

5. Improve Your Investment IQ

If options one through four were all Greek to you, and the thought of your (non-existent) retirement account puts you in a cold sweat, then spending your $500 on your own financial education could be an excellent investment. For instance, you could spend your $500 on Business Insider's list of the 22 most important finance books ever written. Not only will you provide yourself with an excellent reading list for the year, but you will improve your understanding of investment, finance, and past market disasters.

Alternatively, your $500 will pay for a meeting or three with a fee-only financial planner who can help you define and start working toward your financial goals. Generally, you can expect to pay between $100 and $150 per hour to meet with a fee-only planner, which ought to give you enough time to set up a financial plan for your future. Find a fee-only planner in your area at napfa.org.

Invest in Your Home

With just $500 you can spruce up a room, improve your home's energy efficiency, or protect your important papers.

6. Buy a Safe

If you're like most people, you have important papers scattered around your house that you've been meaning to put someplace secure for a long time. Purchase a fire-resistant safe to protect all of those documents — especially in case of a fire, flood, or zombie apocalypse.

You can find a good safe for prices as low as $200. Plan on cashing whatever is leftover of your $500 and keeping it in your safe. In addition to your important documents, you will also need some cash in case of an emergency. (See also: Add These Items to Your Emergency Kit)

7. Insulate Your Attic

Whether you buy some blanket insulation rolls or rent a blower to blow loose-fill insulation into your attic, you can easily improve your home's efficiency and your utility bills for under $500 and one weekend's worth of work.

8. Update a Bathroom

For about $500 — and as long as you are willing to DIY — you can brighten a bathroom. Plan on investing in a can of paint, a new faucet, and a new light fixture with your $500. The best part is that bathroom remodels (even modest ones) tend to have a high return on investment.

Invest in Yourself

You're a valuable asset, too. Five hundred dollars can go a long way toward improving that asset in mind, body, and soul.

9. Take a Course

Your local community college likely has courses on any number of topics that could help your career or simply stimulate your mind. Expect the tuition for a single course, plus books and associated costs to take pretty much all of your $500. (See also: Ways to Learn New Things Every Day)

10. Hire a Personal Trainer

There are so many great reasons to get in shape — and having a personal trainer help you map out fitness plan and teach you the basics can be the impetus needed to finally get fit.

11. Write Your Will

If you haven't put together a will, you ought to make an appointment with a lawyer to do so. It will ensure that your family is taken care of and that your estate will go where you intend. Find a local lawyer at lawyers.com.

12. Buy a Bike

You can get a decent bicycle for under $500, and work on improving your health and reducing your commuting costs by using it to get to and from work. (Make sure you budget enough to also buy a helmet!)

Knowing That Your Spending Is Just Right

No matter how you choose to invest your $500, remember that you can make responsible money choices even with relatively small amounts of money.

How would you spend $500? Share the wealth in comments!

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