What To Do With Your Tax Refund

I know that many of you are going to receive refunds on your federal tax return, and possibly your state return as well when you file your 2021 returns.

If that's the case, you better promise me that you will take my Suze Challenge: What are you going to do with that refund money?

No clue? That is not an option. The average federal tax refund is around $3,000. That is a lot of money that (if used strategically) can help you so much. But if you don't pre-plan what you will do with the money, you may be tempted to spend it on a want, rather than a need.

You are so denied.

Right here and right now, I want you to decide how you will use your refund money to build up your financial security.

Your focus should be on needs, not wants. Some possibilities I would put high on your list.

• Add to your savings fund.

If your emergency fund doesn't yet cover up to a year's worth of living costs, now is a chance to add more.

• Contribute to a Roth IRA.

The annual contribution limits this year is $6,000 ($7,000 if you are at least 50 years old). Let's say you receive a $3,000 refund. If you put that in a Roth IRA and earn say 6% annualized for the next 20 years, your $3,000 will be worth around $10,000. If your investment earns 8%, it will be worth nearly $14,000.

• Pay down your mortgage if you're close to retirement.

If you have carefully run the numbers and know you can afford to stay in your home (and you want to stay in your home!) you know I think it is so very smart to get rid of the mortgage payment before you retire.

• Schedule important maintenance projects.

You likely have plenty of big-ticket items. Your car. The HVAC system, if you own your home. One of the most important ways to extend the life of these (and thus delay having the big expense of replacing them sooner than later) is to pay for quality maintenance.

• Brush up your skills.

Whether it's a course taught online or at your community college, or a series of appointments with a career coach, focusing on your career advancement is a great investment.