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With a Tax Refund: Use the 20 – 50 – 30 Allocation to Keep Your Wealth-Building on Track



If you are among the fortunate few who are getting a tax refund, congratulations! Now you need to maximize your short-term gain by putting it to work for you. I know it is very tempting to think about all the things you could do with this lump sum of money. For example, there is an exciting concert coming up that you have dreamed of attending for a long time. Now this is your time to make it happen. Or is it the exciting trip or a new wardrobe that has you eager to spend the money you are receiving from your tax refund. All of these are good options to consider, however if you consider the 20 – 50 – 30 allocation for your tax refund, you can keep your wealth-building on track while also getting to splurge some of it on yourself to do the things that you have been wanting to do.


So, what is the 20 – 50 – 30 tax refund allocation? At Paycheck to Wealth, we think of it as a way to keep growing your wealth while also enjoying life at the same time. Yes, it is possible to do both. This is how it works. The first 20 is to use 20% of your tax refund to “Pay Yourself First”. This is very important to keep your wealth-building on track. Think of it as an added boost to your financial wellbeing. Next for the second 50 is to use 50% of your tax refund to “Pay Down Debt” or add to your emergency savings. It is very difficult to grow wealth if you are spending a large part of your income towards debt repayments. That is why debt repayment has the largest share of the allocation. You need to pay down debt so that you have more of your money going toward your wealth. Finally, the third 30 or 30% is to “Splurge on Yourself” as a reward for the discipline you are showing towards your financial security. This is the fun part to treat yourself by doing something that you enjoy. Now let’s take a closer look at how this would work using the following illustration.


Table 1: 20 – 50 – 30 Tax Refund Allocation

As you can see from Table 1 above, 20 – 50 – 30 still allows you to use your tax refund to spend money on yourself; however, your wealth-building becomes the higher priority. Paycheck to Wealth always stresses the importance of paying yourself first. You should keep this mindset even when you get a tax refund or any other type of unexpected lump sum payment. Just as important is to pay down debt or add to your emergency savings. These are the things that help you achieve a secure financial future. Finally, you also need to reward yourself by having some fun with this financial windfall that you just received. This makes it all worthwhile. You will enjoy splurging on yourself so much more when you know that you have first taken care to increase your wealth towards your financial freedom.


The 20 – 50 – 30 tax refund allocation is very simple and easy to follow. However as with most things, it is up to you to make it happen. Paycheck to Wealth is here to help. Please contact us today to learn more about the 20 – 50 – 30 tax refund allocation and how it benefits you in the long run.

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