It's Refund Season!

The lucky ones among us are about to come into a mini-windfall of cash. This is a golden opportunity. That mini-windfall is a potential tax refund. If you are really lucky, you will be receiving a federal and state refund. Instead of envisioning all of the lovely, disposable, things you could buy with your refund, consider buying some financial peace of mind. Here are three things to do with this windfall that would be financially beneficial.

First, pay off debt. Still have lingering debt from the pandemic? If so, you are not alone. According to Fortune, credit card debt has grown to $860 billion, and the fastest in 22 years! Wowza! It may be time for a debt assessment. If your refund is enough to completely payoff a debt, this could be a good choice. If it’s not, work with your financial planner and pay off the debt that gives you the greatest bang for your buck and you’ll be debt free in no time. Your financial planner can tell you which debts and in what order provide the shortest payoff time, or saves you the most money.

Second, build or add to your emergency fund. During the pandemic we all learned that having extra cash is a good thing. If you are a two-income household, the emergency fund should be, at minimum, the equivalent of six-to-nine months total expenses. This includes all discretionary and non-discretionary spending. If you are a single-income household, you should really consider having nine-to-twelve months of total expenses as an emergency fund. Your tax refund can add nicely to your cash stash.

Third, start or add to investments. If you have your debt under control, and your emergency fund is sufficient, now is the time to add to investments. Your tax refund could be just the ticket. Consult your financial planner and decide whether you should be starting, or adding to, an IRA, a taxable brokerage account, or topping up another existing investment account.

Oh, one more thing to do with your refund. It’s not a by-the-numbers recommendation, but treat yourself to something. I am not saying spend the whole refund, but take a little and go out to dinner, take the kids to the beach, or camping, or pay for a year of streaming with a new service. Do something nice for yourself. Just don’t blow your whole refund. A good rule of thumb is to take maybe 10% or 20% for your treat. Keep in mind that using your refund for one of the recommended tips does not have to be an “all or nothing” approach. You may be able to split it up and use it for all of the above tips.

A final note about tax refunds… if you are receiving an unusually large refund (and tend to do so every year) now is a great time to meet with a financial planner to figure out why. You should be receiving a smallish-to-zero federal refund. That way, you are enjoying the benefit of your money all year and not making an interest-free loan to Uncle Sam.

As an independent Certified Financial Planner™ I can help you decide how to put your windfall to work. Contact me and let’s get started! #talktometuesday #refund #Hireaplanner #bonus #income #cash #CFPPro #tax #COVID #debt #investment