What Should I Do With My Tax Return or Bonus?

If you are getting a tax return or bonus, it is important to have a plan before it hits your bank account. Once you see that dollar amount in your account, getting emotional about it is easy. Without a plan, you may be tempted to spend it impulsively. I want to share a few ways you may want to consider using it.

6 Ways to Use Your Tax Return or Bonus

1. Build your emergency fund. If you are working the debt snowball, trying to pay off your consumer debt, then your emergency fund would be a “starter” emergency fund of $1,000 for now. Once your consumer debt is paid off, it is wise to have a fully funded emergency fund of 3-6 months of your household expenses.
2. Pay off your consumer debt. If you follow the Ramsey Solutions plan, you would call this Baby Step 2! Have gazelle intensity to pay off your consumer debt (everything but the house) as quickly as possible. I know throwing your whole bonus or tax return at debt isn’t fun, but you will be so glad you did once you can scream, “I’m DEBT-FREE!”
3. Save for retirement. If you are behind on retirement savings, use that money to help catch you up! If you and your spouse didn’t fund your Roth IRAs for 2024, you can do so until tax day! Then, ensure you are funding for 2025 and saving 15% of your income towards retirement on an ongoing basis.
4. Build your sinking funds. I love sinking funds because they help me not to wreck the budget when a large expense happens. Sinking funds are simply a way to save monthly to cover a large expense you know will happen. Think of home repairs, car repairs/replacements, vacations, and even gifts (including Christmas). I know we don’t want to think about Christmas right now, just as we are getting a break in the weather, but if you save now and plan ahead toward Christmas, your December budget will thank you!
5. Give to causes you care about. Giving is truly the most fun you can have with money! So take some of your tax return or bonus and use it to bless others! You (and they) will be grateful you did!
6. Enjoy a portion of it! This is the FUN one! If you’re working on paying off consumer debt and building your emergency fund, I encourage you to allocate a small portion of your return or bonus toward something fun. You’ll want to see progress on your debt, but a small treat—like going out for ice cream or a movie—can keep you motivated. If you’re already debt-free, with a fully funded emergency fund, and your retirement savings are on track, feel free to use more of it as ‘fun money’—just make sure you have enough set aside for upcoming expenses.

This past Monday, I had the opportunity to share these tips on Heartfelt Radio in Barberton. I also wanted to pass them along here. I hope they’re helpful to you.

If you have any questions about this or anything related to your finances or investments, please reach out! I’d be happy to assist you in any way I can.