Consumer Alert: Split your tax refund wisely with the 50-30-20 strategy

Split your tax refund wisely with the 50-30-20 strategy

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ROCHESTER, N.Y. — Our Deanna Dewberry is diving into everyone’s favorite topic: taxes. According to the IRS, the average refund in 2024 is just over $3,100.

According to a survey conducted by GOBankingRates, 25% of respondents say they’re going to save their refunds, 15% say they plan to pay off debt, and 13% say they’re using it to pay monthly bills. 

Only 6% say they want to splurge.

Money expert Jarrett Felton has a suggestion that could please just about anyone — encouraging you to use a rule called “50-30-20.”  

Half of the money would go toward your needs, bills, credit card debt, or a car repair. If you’ve had your eye on something, 30% can go towards that item. Maybe that’s some new furniture, a summer vacation, or a wardrobe revamp.

But, 20% should go to your savings.

Let’s say your tax refund is $3,000. That means $1,500= would go toward your needs, $900 could go toward your wants, and $600 would go in your savings.   

“So 50,30,20. 50% to your needs, 30% to your wants, 20% to your savings. And under the savings could be creating an emergency fund for yourself, so in the event something comes up in life, you’re not taking on a bunch of credit card debt to try to cover these costs. You have six months worth of money for needs, for monthly expenses stashed away, or saved somewhere so you don’t get yourself into debt solving a crisis,” says Felton.

The 50-30-20 rule was popularized by Elizabeth Warren in her book, “All Your Worth,” the ultimate lifetime money plan. Now it’s recommended by a lot of money experts, including our own Jarrett Felton.

Looking for more ideas and savings tools? Here’s a list of a few helpful articles: