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What to Do When You Have Extra Money in The Bank

Mar 29, 2021

Tax season is different this year, so your tax refund may be higher than years’ past. And after such a rollercoaster of a year, this refund could be just what you need to recalibrate your finances. Prioritize paying off any time-sensitive or high-interest debt you have. You don’t have to contribute the full refund; chipping away at debt is still progress! If you don’t have an emergency savings fund, or had to use it during the pandemic, take this opportunity to establish or rebuild a savings account, because if this past year has taught us anything, it’s the value of saving. If you want to spend your refund, do so strategically by prioritizing necessary or time-sensitive repairs, or something you’ve had your eye on for months. Plan for how you’ll use your refund now, before it’s in your account and you’re tempted to make an impulse purchase – your future self will thank you!

Given all of the added nuances the pandemic added to this year’s tax season, your tax refund may be higher than years past. And after such an unpredictable year that required so many to deplete their emergency savings funds, tweak budgets routinely, or even supplement lost income, a tax refund could be just what you need to recalibrate your finances.

You can use this extra chunk of money so many different ways, so it’s important that you take the time now—before it’s in your account, tempting you to spend it—to really figure out which is the best, and most productive, path for you to take.

Here are some considerations to keep in mind when making your plan:


If have debt of any kind:

Extra funds can help alleviate some pressure caused by any looming debt, while still letting you manage your day-to-day expenses using your primary source of income. Consider using your refund (or at least a portion of it) to pay off any time-sensitive or high-interest debt you may have. Even if you don’t pay off the debt in full, chipping away at it is still progress!

If you don’t have an emergency savings fund, or you had to use it during the pandemic:

We are still living through the pandemic, so using this money as a chance to rebuild the foundation for your emergency savings fund is a very wise decision. Or, if you already have an emergency fund, transfer your refund to your existing account!

You don’t have to stash your entire tax return, but try to save at least half of it, as once it’s in your savings account, it’ll begin to grow with interest over time, increasing the value of your investment. The pandemic has proven time and time again just how valuable a savings fund can be, so take any opportunity you can to contribute to one.

If you want to spend your refund:

If you don’t have any outstanding debt, you’re comfortable with your savings, and you want to spend your refund, try to do so responsibly by giving it a decent amount of thought before signing on any dotted lines. If spending, your top priority should be to cover any time-sensitive or essential repairs (e.g., home, appliance, car, etc.) that you’ve been putting off due to lack of funds. Though it may not be the most exciting option, it can lift some of that financial burden off of your shoulders, freeing up some cash later on.

If you don’t have any repairs to cover, but you want to treat yourself (Which everyone is entitled to do!), make sure you really want to purchase the item, good, or service by waiting a full week to purchase anything after receiving your refund. During this week, think about whether or not it’s truly worth purchasing, or if you’d be better off saving that money or spending it on something else instead.

Before making any purchases, you should also consider if that money could be better spent if leveraged in a small investment. If you do take this route, be smart about which stock you’re investing in by doing extensive research before committing and keeping your investment very small, especially if this is your first time dabbling with the stock market.

Any amount of money can relieve some financial stress if leveraged strategically. Think about the areas of your day-to-day life—as well as the bigger picture—where you’ve felt the pinch over the last year, and put your tax return to work. Even if you feel slightly disappointed in your choice to not buy that flashy, new product you’ve had your eye on in an effort to prioritize saving, your future self will thank you for setting yourself up for success in some way.

Erin Elis 
Erin Ellis
Accredited Financial Counselor ®
Philadelphia Federal Credit Union
eellis@PFCU.COM
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Please note that the amount of money contained in your investment accounts are considered non-deposit products and therefore, are not NCUA insured, not credit union guaranteed, may lose value, are not guaranteed by any government agency. Since they are not a deposit of the Philadelphia Federal Credit Union, investment accounts do not qualify for Excess Share Insurance (ESI). Securities, Financial Planning and Insurance products are offered through LPL Financial, and its affiliates, Member FINRA, SIPC. LPL Financial and Philadelphia Federal Credit Union are independent entities.