Tax refund tips: Have you heard of the 1/3, 1/3, 1/3 distribution?

Sara Gilbert resizeBy Sara Gilbert, GreenPath General Manager for Colorado and Wyoming

The average tax refund last year was just less than $3,000 — about the same amount expected for returns being filed now.

For many of us, money and expenses are a constant concern. But if you expect a nice refund this year, try to use that money to alleviate some of those concerns.

There’s no better time than tax season to think about getting some money saved for emergencies. Think about saving some or all of your return for unexpected needs you may face. Having a cushion saved to handle those surprises is a necessity.

In an ideal world, we’d all have money reserved to handle life’s emergencies. In reality, multiple surveys show about half of us live paycheck to paycheck, with having money saved for emergencies being more dream than reality.

Financial emergencies do happen and being prepared for them will help you sleep a lot better.

If you haven’t saved much for long-range goals like a college education for your children or your own retirement needs, a discussion with an investment planner might help you make some choices that will put your refund to work on your family’s goals.

Another good idea for your tax refund is to use it to help reduce debt. Getting out from high-interest debt is always a great idea. Paying off a debt or two will reduce your monthly payments, which is another great way to balance your budget.

If you’re able to pay something off, take the money that was being used to repay that debt and put it in your savings account for emergencies or other family goals such as a down-payment on a house, a new car, or a vacation.

Speaking of vacations, sometimes people do spend their tax refunds on nonessential treats like vacations, new televisions, or other rewards. There’s nothing wrong with this if you’re able to also have money saved for emergencies and future goals and you’re doing a good job of covering your monthly expenses.

Another good idea for a larger tax refund might be to save a third of it, pay a third to debt, and spend the remaining third. That way you can make progress on several financial fronts.

Finally, some planning for next year’s tax season probably should be considered. If you’re receiving a $3,000 refund, you might be withholding more than necessary for taxes. There’s a withholding calculator on the IRS website,, that will help you see if you can comfortably adjust your withholding.

If you prefer to receive that former $3,000 tax refund throughout the year, that might calculate into a monthly pay increase of more than $200 per month, which might be very helpful, indeed!

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