U.S. Treasury check
A stimulus check from the U.S. Treasury. Courtesy Social Security Administration

While the pandemic impacted everyone in one form or another, the average tax refund, projected at $2,873, tracked fairly closely to what it was last year, according to the IRS. Perhaps you were one of the lucky ones to get a refund or you have recently received a stimulus check or another small windfall.

Save? Spend? What should you do with these and other small bonuses you may gain throughout your lifetime? From saving for your future to having a little fun, the following are five key suggestions and strategies for use of this money:

1. Beat back debt: Having to continually pay large interest charges on credit card balances and loans can make it tough to get ahead financially. A good use might be to reduce or eliminate your debt. You might pay down cards with highest interest rates first, while making minimum payments on others.

2. Plan for the unexpected: Life is full of unexpected events that can be expensive. Having an emergency fund can help to prevent you from relying on credit cards to pay for them. If cash is tight and you are using credit, you might end up paying interest on the money you borrowed for a long time.

You can use an unexpected tax refund or bonus to start or add to your emergency fund. Ideally, you should have enough in the emergency fund to cover at least three to six months of living expenses.

3. Save for education: Consider jump-starting, or adding to, a college education savings program for your children or grandchildren. College tuition is expensive and is likely to continue to go up. Regular additions to a college savings program, however small, can help make it more affordable for those you love.

4. Boost your retirement nest egg: Every little bit helps when it comes to saving for retirement. One strategy is to have less income tax withheld from your pay in future years, so you won’t receive a big tax refund.

Better yet, increase your contributions to your employer’s retirement plan to save even more. Ask your tax preparer to help you figure out how much you need to have withheld to avoid penalties or have a large balance due when you file next year’s return.

5. Have a little fun: Depending on the amount of debt you have, you might also consider using a small portion—such as 10% or less—of the refund, stimulus check, or other bonus to make a purchase you have been eyeing that will bring you enjoyment. An option to consider could be taking a vacation, but it is important to not go beyond your means. Lowering debt and saving for the future should come first.

Might now be a good time to take advantage of the markets? And should you invest it in all one lump sum or spread it out over time?

It’s always a good time to invest. Markets generally tend to go higher over time, and this statistical edge generally increases over time.

While investors can sometimes benefit from phasing capital into markets over time, versus employing a simple “lump sum” strategy of investing all at once, you probably should not wait to invest your tax refund. Most of us will receive dozens of tax refunds during our lifetimes, and they don’t usually represent a significant share of the portfolio. Even if you are pursuing a very concentrated or high risk strategy, the odds that you will add significant value by waiting is fairly low.

My recommendations on spending your refund or small bonus are to pay down debt and save. Start thinking about planning for the future, whether it’s college expenses and saving for children or planning for retirement.

Brad Benter is a financial advisor at UBS Wealth Management USA in San Diego.