​What will you do with your income tax refund this year?

​Each year, about 75% of Americans who file tax returns receive a refund with the average amount being around $3,000.  So what do people do with that money? 

Last year, 69% of American consumers used their tax refund to pay down debt and get ahead on monthly expenses such as rent, utilities and car payments, while only 16 percent splurged and bought themselves something.     

That's a great trend and tax time is the perfect way to kick start a savings plan.  As we celebrate Tennessee Saves Week, February 23-28, let's consider how to use our tax refund to increase our financial stability and savings.

A good use of your tax refund is the 30-40-30 plan to pay for your past, present and future.

Past:  Designate 30% of your refund to paying off debt and catching up on outstanding bills. 

Use 30% of your refund to pay down debt. Using your refund to pay off high-interest debt, like credit cards, is a responsible way to utilize the extra money your refund check will bring. Paying off your debt could save you hundreds of dollars in interest that you would pay down the line. This is a great way to maximize your refund dollars.

 

Present:  Earmark 40% of your refund for current use.

Create a monthly spending plan and write down how you will spend your tax refund throughout the year. If you divide the amount of money in your tax refund over 12 months, it won’t be as easy to splurge or spend your refund too quickly and you can use it for expenses in the current year. Think of the new clothes you need for your growing toddler or teen, the braces your child may need, or paying for summer camp. Even if you allow yourself a spa massage every month, think of how much easier it would be to pay for it if you put money away for it now. Being strategic about how you will spend your money will make it easier to do it in the future.

 

Future:  Use 30% to jump start an emergency fund or longer term savings.

Put 30% of your refund in an emergency savings account. From car maintenance and home improvements to medical emergencies, an inconvenient event is bound to come up in 2015, and you will want to be financially prepared. Most car repairs, home improvements, and medical procedures cost at least $250, even with insurance. Military Saves recommends saving at least $500 for emergencies, so consider using part of your refund to open or add to your emergency savings account.

IRAs and 401k plans are opportunities to put aside money now for retirement purposes. Since these plans are tax-advantaged, they are even more valuable than a typical savings or investment account. So if you’ve been avoiding retirement contributions lately, or have not even started a retirement plan yet, you could use your tax refund to turn that around in 2015.

 

Jump start your savings this year with the 30-40-30 plan for your tax refund.

 

For more information on saving and financial planning check out the America Saves website at http://www.americasaves.org/.