Tax season is well and truly underway in America. While it is no fun preparing a return for the IRS, many of us rather enjoy getting a check back from Uncle Sam.
And with the average refund being nearly $3,000, it is a nice chunk of change to have to arrive in your bank account.
But what to do with it? Buy that 75-inch flat-screen television you have been imagining watching the game on? Have a great vacation? While it is not the fun answer, the best answer is probably not. There are much better ways to use that money that will have a greater long-term benefit for you and your family.
This is a great time to sit down and take stock of your financial situation, and your financial goals and dreams for the future. Where you are at will play a big part in the best course of action for your refund check.
And given the problems 2020 threw at us all unexpectedly, the most obvious starting place is savings for a rainy day. Even the most financially secure of us found 2020 to be full of some unexpectedly nasty surprises. Having a financial cushion of even a couple of thousand dollars can make a big difference. Your mental well-being will improve, as you can stop worrying about where the next rent or mortgage payment will come from.
Being able to pay bills without hitting a credit card is a major advantage. You are avoiding heading into a debt cycle with high repayments.
And if you turn out not to need emergency funding, you have the added bonus of starting the savings habit off well. You could make a pot to grow for the future – college perhaps, or even your own retirement.
But if you are already sitting on a pile of debt, it may make sense to hit the balances fast and hard. Not exactly fun, granted, but it will make a major dent in your monthly outgoings which you can then start to save instead of giving to someone else. If you have several types of debt, it is generally best to hit the higher interest percentages first as you will reap bigger financial benefits.
This strategy will also soon show a positive impact on your credit score. This allows you to further improve your debt situation by refinancing to better rates.
If you are behind on retirement savings, make the most of the windfall and get it stashed away into a good retirement plan. There are a lot of options and choices out there so seek professional guidance to get the best solution for you.
And if you do plan on spending, spend wisely. Invest in yourself with new skills, or professional learning, so the spending generates a good return for you both financially and for personal satisfaction.