A tax return is something that presents many opportunities for American taxpayers. That could be getting out of debt, taking a vacation, saving the money; the list is virtually never ending. Making a decision, let alone a good decision on how to spend your tax return can be difficult and possibly overwhelming. A strategy to consider when making this decision is the 30-40-30 rule.
The 30-40-30 rule breaks down your tax refund into three categories, past, present, and future. This means 30% of your tax return can go towards past payments or purchases, 40% towards present consumption, and 30% towards future endeavors.
The 30% of your tax return spent on things from the past of course means your debt. The best way to get out of debt is to pay off your debt. A tax return provides a great opportunity to take a step forward in debt relief.
Next, take 40% of your tax return and spend that on current activities. These things could be groceries, current or up to date bills or payments, or even the occasional treat for you. This 40% is for anything you need now.
Finally, the last 30% of your tax return can go towards future finances. The future category can cover things such as depositing into a savings account, starting a rainy day or emergency fund, starting or contributing to a college fund, anything that will help you prepare for future finances.
When contemplating what to do with your tax return this year, consider the 30-40-30, or make a plan of your own. The goal here is to keep track of your tax return, and all of your money for that matter. Ensure your tax return is not going to waste, but instead is helping you financially.