Save Some. Spend Some, making the most of your tax refund PREPARE FILE SAVE

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1 PREPARE FILE SAVE Spend Some, Save Some making the most of your tax refund Congratulations! You have made the smart choice in getting your income taxes prepared at your local Volunteer Income Tax Assistance (VITA) site. This free service is helping you keep more of your hard-earned money, especially if you qualify for the Earned Income Tax Credit. This guide will walk you through some important things to consider when using your refund, and will help you make the most of the money you are expecting. The Earned Income Tax Credit (EITC) is a refundable tax credit for working individuals and families who file a tax return. If you did not claim your EITC in the past three years, you are still eligible to apply to reclaim it! Ask your tax preparer to help you find out if you are eligible to claim past EITC benefits. sponsored by

2 Saving for later while taking care of what you need to today! If you won $2,000 in the lottery today, how would you spend it? You may already expect that you will be getting a tax refund and chances are you have a good idea about how you plan to spend this money before it arrives in your mailbox or is deposited directly in your bank account. Hint: opening a bank account and having your tax refund deposited directly into your account allows you to receive your funds more quickly and ensures they arrive safely. A. B. C. All in one place I m ready to spend it NOW! Split the winnings between myself and my family they deserve a treat, too. Use some of the money for things I really need now and put some away for later I never know when I may need it. Like the lottery, your tax refund can be an opportunity for a big lump sum of money. Your answer above can help you think of how you may be inclined to spend your refund. Yet unlike the lottery, you ve worked extra hard for this money so it s important to use it carefully! You can split up your tax refund. A split refund allows you to deposit your money into multiple accounts so that you can spend and save at tax time. Consider saving your money in a U.S. Savings Bond or College Savings account an easy savings tool that grows in value over time. In addition, if you are already saving money in a retirement account, you may qualify for the Saver s Credit, an incentive which may give you money based on what you save in your account. A tax refund is a great way to cover the expenses you need to take care of today, like rent, credit card debt and past-due bills. It is important to use some of this cash to pay off high-interest debt. High debt and unpaid bills can impact your credit score, your ability to get a car or insurance and even your ability to get a job. You can get a free copy of your credit report by visiting the only authorized online source for a free credit report. 2

3 A little savings can make a BIG difference! Saving part of your refund now can do a lot for your future by: 1. Cushioning unexpected expenses like car repair, medical bills or job loss and help you avoid future debt 2. Giving you muchneeded peace of mind you know you ll be ready in case something unexpected does come up 3. Helping you invest in your dreams for the future like going to school, buying a home or starting your own business Saving even small amounts of money each week can help you reach your financial goals. Imagine $500 or even $1,000 for going back to school, starting your own business or setting up an emergency fund. Saving just $5 per week can really add up! $260 $520 $780 $1,040 Year 1 Year 2 Year 3 Year 4 There are special savings programs that will match the money you save toward goals like education, homeownership or starting your own business. Visit to find an Individual Development account (IDa) program near you! Saving for emergencies An emergency fund (or a rainy day fund) is an important tool to help you prepare for unexpected events, especially in a tough economy. Even a modest emergency fund can help prevent future debt and support you in times of unemployment. Generally, it is smart to have 4 to 6 months worth of your income put away in your emergency fund. Even if you only have $20 to contribute today, the most important thing you can do is start saving now! Many people have debt that could have been avoided if they had a savings account to pull from during emergencies. Do you have any debt that could have been prevented with some savings? If so, write it down here. (Example: I still owe my doctor $220 from when I got sick. ) 3

4 Saving money and taking care of your needs all at once! While everyone has different circumstances when it comes to paying off debt, covering basic necessities and saving money, here is a general rule of thumb for dividing up your tax refund: Use the last page of this booklet to keep track of how you plan to use your refund. HOWEVER I WANT: 10% NOW: 60% FOR LATER: 30% Now: 60% to spend on musthaves. This includes paying off debt or taking care of necessities like rent or food. (This percentage may be higher if you have a lot of high-interest debt.) For later: 30% to save for your future and the unexpected. This is to cover life s emergencies, start up a long-term savings goal and help prevent debt from happening in the first place! HowEvEr I want: 10% to spend on nice-to-haves. Use this money for things like shopping, giving money to relatives or home upgrades. An important step toward saving money is to make sure you have a safe, easy-to-use bank account with low fees. Having a bank account provides you with a safe place to keep your money, helps you manage and pay your bills, helps you build credit and allows you to earn interest on your deposits. Visit to find a free or low-cost banking product near you, or call for information on banks or credit unions in your area. 4

5 Making savvy spending decisions Saving a portion of your tax refund is a great way to jumpstart your savings. But tax time only comes once a year. Here are some additional tips and tools to find money to save all year round. Consider the needs and wants in your life There are things we all need to survive like food, shelter and clothing and things we want, or something that would be nice to have like going out to eat or going to the beauty salon. Deciding whether purchases are needs or wants can help your family save money and reach your financial goals. Sometimes it is hard to decide if something is a need or a want. For example, most of us need to communicate by telephone. But there are many decisions involved in getting a phone (do you need a landline, mobile phone or smart phone?), and each decision impacts your finances. When making a spending decision, ask yourself: How much can I afford and what do I need? Is there a less expensive option? Have I saved money for this? Will this last as long as I need it to? Is it something I need? Can I afford it? 5

6 Finding money to save even on a tight budget! Chances are there is something in your life that you or your family might be spending too much money on without even thinking about it. These are called spending leaks because the money is just leaking out of your pocket! Spending leaks make it harder to save money. Money leaks out of our pockets when we spend money regularly on things we want, like going out to eat, pampering ourselves or comforts like cable TV. But there are ways you can still have the things you want while saving money at the same time. Consider coffee Some people feel like they need coffee to start the day right. Is it necessary to drink expensive coffee every day, though? Here s what a cup of coffee costs FaNCY CoFFEE SHoP $2 per cup = $60 each month CoNvENIENCE STorE OR FAST-FOOD restaurant $1 per cup = $30 each month BREWING AT HOME 25 cents per cup = $7.50 each month You can save $30 each month by buying coffee at a fast-food place or convenience store instead of an expensive coffee shop, and more than $50 each month by making your own coffee at home. That s a savings of as much as $600 a year! other examples include preparing your own lunch at home rather than buying it, setting up a carpool to bring your kids to school to save on gas, getting your nails or hair done once a month instead of twice a month, or cutting your cable. And remember, spending leaks can apply to your entire family, not just you. Try looking for ways to plug spending leaks that affect the whole family. 6

7 Find and plug spending leaks A day in the life Angela Angela is a hard-working mother with two growing children, and wants to save up to open her own hair salon. Mornings are chaotic, and she ll grab breakfast at a fast-food drive-thru window after dropping her kids off at school. At least once a week, Angela will get her nails done or go window shopping during her lunch break. While she s at work, she ll usually buy a candy bar in the vending machine around 3 p.m. when she gets tired. After work, she drives each child to a different soccer practice. When the family is together in the evening, they usually watch cable TV or rent a DVD from the grocery store. Find the spending leaks! Consider Angela s daily, weekly and monthly expenses. What are some spending leaks that Angela can plug to save at least $5 each week? Use the worksheet on the last page of this booklet to plug your own spending leaks. 7

8 My savings plan worksheet This worksheet will help remind you and your family of how you plan to spend your tax refund, and ways to save money all year long. Place on your fridge or in another visible area in your home. 1. What could a little bit of savings do for me in the future? (Circle all that apply.) a. Help with emergencies b. Help with repairs c. Help stay out of debt d. Give peace of mind e. Help reach my goals, like owning a home, starting a business or going to school f. Other: 2. I would like to have $ in the bank by (write down month/year here) I will use my savings for 3. I expect to get $ from my tax refund this year. 4. Here s how I plan to use my refund: Now Some of your debt probably needs to be paid off right away. A general rule of thumb is to use a little over half of your refund to pay this off, more if you need to (about 60%). For later Try to save around one-third (30%) of your refund in this category. You could save yourself from debt in the future by saving now! However I want After you use your refund to pay down your debts and build up your savings, spend this money (no more than 10%) on whatever you want that s important to you and your family! NOW: 60% FOR LATER: 30% HOWEVER I WANT: 10% Now: must-have necessities (debt, past-due bills, immediate repairs, etc.) How much? For what? For later: the unexpected and my future (emergencies, car repairs, long-term savings, etc.) How much? For what? However I want: things that are nice-tohave (treats, gifts, home upgrades, etc.) How much? For what? 5. Everyday savings: One spending leak that my family and I will try to plug this week or month is: I expect to save $ per week/per month (circle one) by plugging this spending leak. I plan to use this extra money for sponsored by