Date: May 10, 2021

5 Ways This Financial Advisor Suggests You Use Your Tax Return, Bonus or Surplus

There’s no greater feeling than coming into some extra money – whether it’s a tax return, a bonus, a stimulus check or some other surplus of cash.

There are a million things you may want to do with it – a new car, a vacation, a shopping spree! However, before you get too lost in your daydreams, the financial advisors at Watts Gwilliam and Company ask you to take a quick look at the big picture. What if you could use the money to make more money, and improve your finances?

If 2020 taught us anything, it’s that life is full of unexpected twists and turns. No one can predict what will happen next week, let alone next year. Are you prepared for the unexpected?

While an emergency fund can be a huge bonus (yes, even for high net worth individuals), providing peace of mind and the funds to back it up, there are other ways to prepare yourself for the unknown. Like eliminating debt and therefore, improving your credit so you’re able to borrow money if you need to in the future. Or what about funding your retirement, which can take the fear out of a potential early retirement?

Despite common misconceptions, getting ready for retirement can be harder for high net worth individuals, because they often become accustomed to a luxurious lifestyle that can be hard to maintain later in life when regular paychecks stop.

With many people receiving tax returns this time of year, the financial advisors at Watts Gwilliam and Company have compiled 5 smart ways to use that money – or that bonus you received for working overtime during the pandemic, or that surplus of cash you find yourself with after cutting back your spending last year.

The excitement that comes along with sudden wealth often leads recipients to react opposed to respond. At Watts Gwilliam and Company, we see that happen a lot when receiving a substantial inheritance or getting more than expected when selling a business or home. Sure, a luxurious vacation or new vehicle may be the exciting thing to do. But take a second to consider your long-term goals. More money can actually create more problems if not handled correctly. Read our recent blog post: 6 Common Financial Planning Mistakes We See Athletes Make.


Not sure what to do with a sudden financial windfall? Contact the financial advisors at Watts Gwilliam and Company to see how we can help.


1. Pay Off Debt

Debt is the biggest barrier between you and financial freedom. It’s like a ball and chain that stays tied to your ankle, weighing you down and preventing you from reaching your financial goals.

The higher the interest rate on your debt, the bigger this ball and chain can be.

Take credit card debt, for example. The average American has $5,315 in credit card debt, with the average interest rate being around 17.78 percent. If you only paid the minimum payment, it’d take you 11 years and more than $3,000 in interest to pay that debt off.

Paying your debt off first, whether that’s credit card debt, your mortgage, an auto loan, medical debt or even student loans, can be a great way to free up extra money in your budget that you can then use to fund future goals.

If you have multiple debts and feel overwhelmed with where to start, work with your financial advisor to create a debt payoff plan using the following steps:

  1. List out all your debts.
  2. Rank them in the order you’ll pay them off. (Some people start with their smallest balance and work their way up to the largest. This is called the debt snowball method. Others choose the debt with the highest interest rate first and work their way down to the smallest interest rate. This is called the debt avalanche method.)
  3. Put as much money as you can toward the first debt on your list.
  4. Once that debt is completely paid off, move onto the next one.

2. Earmark the Money for Later

Do you have any major financial goals you want to accomplish? Maybe you’re trying to:

  • Build a six-month emergency fund so your family is protected, if you were to lose your job or face a large, unexpected expense
  • Save up enough money to open your own business
  • Fund your kids’ college education
  • Put a sizeable down payment on your dream house

Whatever it is, earmarking your newfound money for these bigger goals can be a great way to accelerate your progress and motivate yourself to keep going.

3. Invest It

If you’re caught up on expenses and don’t have any short-term goals you’re trying to fund, consider investing your money. Even if it’s just a few thousand dollars, the money can grow to a sizable nest egg if given the time.

Take tax returns, for example. The average tax return was $2,707 for the 2020 filing season. If you took that money and invested it for your grandson’s education, you’d have $10,817 in 18 years, assuming an 8 percent annualized return.

Even better, if you took that average $2,707 tax return and invested it every year, you’d have $109,488 in 18 years ($60,000 of which would be purely earned interest). Not too bad!

4. Put It Toward Your Retirement

Putting your newfound money toward retirement has two main benefits:

  1. You can reduce your taxable income for the current year (which lowers your tax bill).
  2. You give your retirement savings a nice little boost.

For 2021, you can save up to $19,500 in your 401(k) or similar employer-sponsored retirement plan. If you’re at least 50, you can save an additional $6,500 in catch-up contributions (that’s $27,000 total).

If you have a Traditional or Roth IRA, you can save up to $6,000 in 2021, plus an additional $1,000 if you’re at least 50 years of age (for a total of $7,000).

Remember, a Roth IRA is the only account in this list that’s funded with after-tax dollars. If you have this type of account, you won’t see any tax benefits until you get to retirement, in which case, you’ll enjoy tax-free growth and withdrawals.

5. Talk to a Financial Advisor about How to Make the Money Work Best for You

Up until this point, our recommendations have been pretty cookie-cutter – pay off your debt, save your money for later, invest it. But no one’s financial situations are exactly the same. You may be looking for some more sophisticated ways to use your windfall.

In this case, schedule a no-obligation conversation with the financial advisors at Watts Gwilliam and Company and put a customized plan in place to make your money work for you.

The right financial advisor can help you understand your options and possibly use your extra money to:

  • Contribute to your favorite charity
  • Start a business
  • Mitigate taxes
  • Help a loved one
  • Put a trust or foundation in place
  • Invest in real estate

The ideas are essentially endless!

Don’t underestimate the value of having a financial advisor in your corner. A financial advisor can be the key to helping you accomplish even the most complex financial goals.

How Watts Gwilliam and Company Can Help

Above, we’ve listed just a handful of ways you can use your tax return, bonus or another surplus of cash to better your financial future. If you’d like personalized help figuring out how to use your money according to your priorities, let’s talk. Our financial advisors in Gilbert, AZ help clients nationwide put a plan in place that puts you one step closer to your big-picture dreams.

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David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.