When it comes to receiving a tax refund, there is no “one way” to utilize it. Whether it’s used to pay down debts, create an emergency savings fund, or have fun, the Tax Refund Calculator can help you prioritize how to use the refund while keeping in mind your financial responsibilities. By following the Tax Refund formula, you can prioritize your critical finances, while allowing yourself to splurge a bit on the special item that you kept your eye on these past several months.
Spending Needs – 30%
When dedicating the largest percentage of your refund to spending needs, it is important to determine what is in fact a necessity. Common needs may include household appliances that are beyond repair, such as dishwashers or washing machines. Similarly, maybe you need an updated professional wardrobe for your new job or a new vehicle to help you get there.
Debts – 25%
By focusing 25% of your tax return on debts with higher interest rates, your choice will yield long-term results that save you the most money in interest. However, if your main priority is trying to fix or establish your credit, consider applying the 25% to newer debts.
Savings – 20%
Maintaining a steady emergency savings fund should be a top priority in the event of unforeseen events, such as the need for a home repair or vehicle replacement. Additionally, the 20% can go toward short-term goals, such as gifts for loved ones or even a future vacation.
Long-term Investments – 15%
Long-term investments are always a wise use of your tax refund, and they can go toward your 401(k) or IRA, which in turn may also result in saving on future taxes. Another possibility for your 15% is utilizing it to fund or boost your child’s 529 college savings account.
Fun – 10%
While you may lower your refund percentage allocated to something enjoyable, making sure that it exists will make it easier to put the rest of the money toward your other goals. Some possibilities for the last 10% include a vacation or a night out with a loved one.