Here’s How You Should Split Your Tax Refund Between Fun and Your Future
Written by
Kerra Bolton
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Amber Barkley
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A tax refund may seem like a financial windfall.
However, financial experts recommend dividing the refund into intentional categories — paying daily expenses, boosting savings or retirement, and having fun. This strategy helps build long-term security while offering immediate joy.
Here’s how you should split your tax refund between fun and your future.
Follow the 30/10 Rule
Ketti Rose, founder and CEO of Wealthy Femme, a platform that provides financial literacy and investing education for women, recommends that her clients follow the “30/30/30/10 Rule.”
The formula allocates 30% for investing or accumulating wealth, 30% towards savings or paying down high-interest debt, 30% for a personal or family goal that generates warmth — like travel, a hobby or home improvement — and 10% for guilt-free splurging.
Rose also recommends writing a “Joy List” before receiving the tax refund.
“That could be a weekend away with some friends, upgrading your coffee set up or signing up for a course you’ve had your eyes on,” Rose said. “Select something that seems fun and aligned.”
She explained, “Intentional spending brings joy. Mindless spending brings regret. If you’re a parent, like me, maybe use a portion of your refund to invest in something you and your kids could do together, because memories are also a return on investment.”
Think Impact
Travis Forman, portfolio manager at Strategic Private Wealth Counsel, said the biggest chunk of one’s refund (50%) should be used to save for the future while the remaining half could be used toward paying down current bills (30%) and fun (20%).
“Match the ‘future’ portion to your most pressing financial opportunity,” Forman said. “This means if you’re paying high-interest debt, make an extra payment. Address what most urgently needs to be addressed. Then, if your financial house is in order, then you have more flexibility to choose where you want your additional cash.”
Forman explained, “When you have extra cash, it can be easy to get confused on where to spend it. Pick a meaningful splurge and set a dollar cap. A weekend trip, new gear or a spa day are a few examples.”
Taxpayers who receive a small refund can also follow Forman’s formula.
“Think impact, not amount,” Forman said. “Use it toward a goal. Use it to fund a future weekend getaway. Knock out one bill or save it.”
Paying Debt Reduces Stress
Melanie Musson, a finance expert with InsuranceProviders.com, said individuals should prioritize reducing their high-interest debt.
“Once your credit cards are current and you have paid off personal loans, you should split additional funds between retirement and savings,” Musson said. “If there’s a chance you’ll owe money next year, apply your refund toward next year’s taxes.”
She said, “Paying off debt is fun because it reduces stress.” However, if one’s idea of fun includes other activities, Musson recommends investing in joy.
“For example, if you love espresso drinks and buy coffee frequently, you could use your tax refund to buy an espresso machine,” Musson said. “Then, you can avoid buying coffee drinks and make your own. If you love coffee, you’ll appreciate your espresso machine every single day.”
Have a Refund Party
Rob Burnette, an investment advisor representative and professional tax preparer at Outlook Financial Center, recommended taxpayers have a party.
“A refund isn’t ‘free money,'” Burnette said. “It is a return of your money from the government. You gave them an interest-free loan and had to request it be refunded. Have a ‘tax refund party’ with a prize for the person with the refund or balance due that is the closest to zero.”
In addition, Burnette said taxpayers should plan what to do with their refund or any other large financial events, such as a promotion or a bonus from work.
“Have several ‘wins’ with the money, like paying down debt, putting money away for retirement or getting your emergency fund in better condition,” Burnette said.
He recommended using part of your refund to pay off credit card debt for “the most immediate bang for the buck.
“As debt is repaid, the allocation to retirement, savings and other financial milestones can go up. If major events, like having children, helping to pay for college for the children or buying a house, are in your future, be sure those expenses are a part of your plan.”
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