by Tara Blaine

Rethink Your Tax Refund

It’s exciting to get your tax refund—after all, who doesn’t like a sudden windfall? But before you start a spending spree, take a moment to look at the big picture. You worked hard for that money—tuck it into an interest-earning account and make it work hard for you.
Rethink Your Refund

It may feel like pennies from heaven, but your tax refund isn’t free money—it’s your hard-earned cash. The IRS hangs onto a portion of your paycheck all year long; now they’re finally returning what’s yours.

It’s almost like you’ve been putting funds into a mandated savings account every pay period (a kinda crappy one that doesn’t pay interest!). Now that you can finally “withdraw” what you “saved,” you have a chance to get more out of it.

Split the difference

Of course, setting aside your entire refund isn’t always practical—you might have a pressing expense, or just need to scratch that spending itch. But you can spend some of it without blowing your chance to build your savings.

Try the 60/20/20 rule: stash 60% in savings, put 20% toward paying down debt, and treat yourself with the remaining 20%. Change up the percentages however works best for you—what matters is that you divvy up your refund so you can have your cake and eat it too (literally, if you have a field day at the bakery!). Pledge to save a % now.

Make saving meaningful

Okay, you’ve pinkie-promised yourself to save at least a portion of that refund check. But it will be a lot easier to follow through and keep that cash earning interest (like in a high-yield Protected Goals Account) if you have a meaningful reason to do it. Here are a few worthy goals:

Account buffer: An unexpected bill, a once-in-a-lifetime-eBay find, getting a little too spend-happy at happy hour: when your Safe-to-Spend suddenly drops uncomfortably low, you’ll be relieved to have a cushion on hand. Find out more.

Emergency fund: You’ve probably heard the statistics: 40% of people can’t cover a $400 unexpected expense—and 60% don’t have the cash for a $1,000 surprise. An emergency fund buys you something truly priceless—peace of mind. Find out more.

The things you really (really) want: What’s your pie-in-the-sky? The trip of a lifetime, owning a home, adopting a furry BFF—the only way to get the bigger things that make life sweeter is to save up—and that’s where Goals come in. Find out more.

Last year’s money = a gift for your future self

Let’s break out the crystal ball:

  • Past you filled out a tax withholding form so that you’d have a refund instead of a bill.
  • Present you saves some of that refund in an account that lets you earn interest.
  • Future you weathers emergencies with ease, buys the things that matter most—and builds a time machine to come back and high-five present you! (If you manage that last one, please bring us back some jet packs while you’re at it.)

To make sure you keep your promise to yourself, commit now to the % you’ll save—Simple will automatically put it in your Protected Goals Account when your refund arrives.

A final bit of advice

If you’re getting a huge tax refund every year, you might want to adjust your withholding. Because as fun as it is to see a massive deposit from the IRS, having that money in every paycheck puts you in control of how you save or spend it throughout the year. You can use the IRS withholding estimator to get a bead on the best way to update your W-4.

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA Compass, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.

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