Tax Returns, A Savings Account Love Story…
Tax return time is upon us, so I thought I would be timely and
make a post about being fiscally smart about your refund this year.
I know that for most people, your tax refund is an opportunity to splurge on something you’ve wanted but didn’t have the money to buy during the course of the prior 12 months. A vacation? A new laptop? New clothing? A new TV? A new Chanel bag? Make it rain! You’re rich (kind of)! And while I’m definitely of the mindset that everyone occasionally needs to ‘treat yo self’, I would challenge you to save/invest at least 50% of your return this year. Why? Because your future self will thank you for it when shit hits the fan and you have an emergency expense.
I started adhering to the “at least 50%” rule a few years ago and it has made a huge difference in pushing me towards my savings goals. You have probably seen me mention signing up for a Mint.com account to manage the larger picture of my finances. It has seriously changed my life in the financial management sense – it has helped me to feel completely in control of all my accounts, all in one stop. That being said, when setting up my Mint account, one of the first things I did was establish a goal to create an Emergency Fund.
Side Note: Mint allows you set all sorts of “Goals” (i.e. paying off credit card debt or student loan debt, saving for specific events like a new car or house or emergency fund). It’s really simple to tie the goal to a specific account (savings/checking/investment) and track your progress.
Once you have the goal set, you select the amount per month that you want to aim towards accomplishing that goal. Mint will then generate the date by which it expects you can accomplish it. If you are putting your lump sum tax refund into the account, it will let you know how far ahead that deposit put you (for example, “You are 2 months ahead of your goal!).
When I can put a big chunk of change in my savings account, there’s a sense of accomplishment. I feel secure/prepared if something terrible happens (car repairs are the WORST offender). There’s also a freedom in knowing that you’re not on the edge of financial devastation should an emergency occur.
If you’re thinking of heeding the above advice and buffing up your savings account with your tax return this year, I also recommend getting more bang for your buck by signing up for a high interest savings or checking account. I’ve mentioned this in the past as well, but I figure that now is a good time to remind you. There are tons of accounts out there that offer a better yield with higher interest rates (some up to 1% or 1.05%) than traditional big bank savings accounts (national average is .06%). I have two of these accounts myself (Checking – Aspiration Summit; Savings – Ally), in addition to my big bank checking account. Both of my accounts were really easy to set up and I can withdraw from either at any time, if needed. However, my rule is that I don’t touch that money unless it hits emergency criteria. That new TV that I mentioned above is NOT an emergency, even if it feels like it in a moment of retail desperation… and even if it is on sale.
Beyond high interest savings/checking, there are also tons of robo-adviser options for beginner investors out there. I have personally tried out two platforms over the last year (Wealthfront and Betterment - my average return is 1.6%, which is slightly better than the high interest yield on my savings/checking accounts of 1%). I’m still learning the ropes of these platforms, but will report back as I become more comfortable.
Moral of the story: If at all possible, save those tax return coins ya’ll!
Disclaimer: I’m not a professional financial planner – this is just a hobby of mine that evolved as I decided to do my research and take practical steps towards becoming more fiscally intelligent. Hope it helps! I also wanted to say that lately I’ve received several messages about you all appreciating this sort of content – I’m happy that you like it! I’ll try to keep posting every once in a while when inspiration strikes : )