Survey: How Americans Plan to Use Tax Refunds
Eighty percent of Americans expecting a tax refund this year plan to save 25 percent or more, according to a new SunTrust Banks, Inc. (NYSE: STI) survey. Other plans for tax refunds include paying down debt (35 percent), travel/entertainment (22 percent), retail purchases (18 percent) and home improvement (13 percent).
“This may be the year consumers give themselves breathing room by building up their short-term savings,” said Brian Nelson Ford, financial well-being executive at SunTrust. “We know from previous research that about half of Americans don’t have $2,000 on hand to cover an emergency. It’s a great time to break that statistic, reduce the stress of living paycheck-to-paycheck and build financial confidence.”
According to IRS data, Americans qualifying for refunds received an average of $2,763 last year, an increase of roughly two percent over the previous year. To best manage a cash windfall, SunTrust suggests the following:
- Use the 50/30/20 formula. This year, consider applying 50 percent of a tax refund or bonus to savings; 30 percent to pay down debt; and 20 percent to spend. With some balance, there is nothing wrong with spending a little on you.
- Don’t spend the money before it arrives. Whether you’re looking forward to a tax refund or bonus, wait until the money is in your account before using the funds. You are more likely to make a smarter decision if the money is in your possession.
- Transfer your refund into a savings account. If your refund was deposited electronically into a checking account, don’t let it sit there while you decide how to use it. Transfer the money to a savings account to earn higher interest – or even a six-month certificate of deposit (CD) – until you know how to divide it across saving, debt reduction and spending.
- Ask for advice. You may be a do-it-yourself type, but sometimes it’s better to get an outsider’s perspective. Set up a meeting with a personal banker who can help you decide whether it’s better to save, invest or pay down debt – or all three.
- Anticipate future expenses. Recognize that 2018 will likely bring unexpected expenses that you won’t be able to meet with your normal cash flow. Cars need repairs and roofs sometimes leak. Everybody deals with unwelcome expenses, so saving a good portion of your tax refund can help you stay ahead of the financial curve.