January 3, 2013
By Lila Quintiliani, AFC®
Military Saves Assistant Coordinator
Communication and Outreach
About 80% of Americans got some sort of tax refund last year. According to a 2012 survey by the National Retail Foundation, 4 out of 10 Americans planned on using their return to pay down debt. 28.7% planned on using it for everyday expenses while over 33% were going to use it as “free money” to spend on a large purchase, such as a car or a vacation. But by far the best idea is to have a concrete plan for your tax refund.
The 30-40-30 Plan
One way you can look at dividing up your return is called the 30-40-30 Plan. Using this plan, you take 30% of your refund and pay down debt. You use 40% of your refund toward current needs (and this might include some discretionary spending). Then you use the final 30% toward savings, whether that’s to build up your emergency fund or for longer-term savings. If you have at least $500-$1000 in your emergency fund you can consider other savings goals, such as using a portion of your return to buy bonds or allocating more money to your retirement or college savings account.
Having a plan in place before you get your refund will put you in control of your finances and help set you up for future success.
You can save and we can help! Take the Military Saves Pledge today and build wealth, not debt.