Refund Received? Here’s How to Make It Count
It’s tax refund season! The only time you’re excited to get your own money back. 🤭 The average working American expects a $3,000 return and the big question is: How do you plan to spend it?
Most people do not like the idea of putting all of that hard-earned money towards debt. This is why I like to suggest to my clients a percentage-based strategy, which allows you to find a sense of balance in your finances. We shouldn’t be going so fast and furious paying off debt that we neglect self-care as this creates burnout. Similarly, we shouldn’t be spending so much on self-care that we don’t have enough to pay down our debts as this has significant, long-term psychological effects including stress, shame, and frustration.
Percentage-Based Tax Refund Strategy
The percentages and categories are yours to define; here is an example of what a $3000 refund could look like:
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20% ($600) on Enjoyment: Splurge on that 90-minute massage. Buy the skills-development course. Take your family out for lobster. Find ways to spend this money on leisure activities and small indulgences that allow you to feel relaxed and content.
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20% ($600) on Savings*: Most Americans are unable to cover a $500 unexpected expense without going into debt and struggling to recover. Insure your family by saving for a rainy day. If you are tempted to spend your savings because you know it’s there, place it in a separate bank – ideally a high yield savings account that earns 4% or more.
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60% ($1800) on Debt: If you’re struggling to make ends meet, the order of focus should be:
- Keeping utility bills caught up so your family stays warm & hydrated
- Making past due car payments so you can continue going to work
- Paying down your highest interest rate debt because it’s costing you the most
If you and your family have different circumstances that you’d like to discuss with a professional, I’m here to chat.
*If your tax return is $1,000 or less and you have no liquid savings, I recommend putting 100% into savings.
