Your Tax Refund & The 50/50 Rule

By Melissa Tosetti

Were you lucky enough to receive a tax refund?

If so, before you start planning on how you’re going to spend it, can I ask a personal question?  Do you suffer from Goldfish Syndrome?

Let me explain.

Over the past eight years, I’ve worked with clients who make $60,000 a year and regularly contribute to their 401(k) as well as build healthy savings accounts. They’re able to go on vacation and purchase what they want and need.

I’ve also worked with clients making over a million dollars a year who live paycheck to paycheck.

What’s the difference? Goldfish Syndrome

A goldfish will grow to its environment (with a few caveats). We do the same thing with our paychecks – increasing our cost of living with every pay raise, bonus and tax refund.

When we get a raise, we buy a bigger house. When we get a bonus, we make a down payment on new car. The next raise, purchase the timeshare. We never give ourselves a chance to let our income increase over our expenses.

So, what’s the antidote for Goldfish Syndrome? It’s the 50/50 Rule.

The 50/50 Rule breaks down like this… for every pay raise, bonus, tax refund and/or financial windfall:

  • Take 50% and put it toward your wealth building accounts such as your 401(k), IRA or other investments.
  • The other 50% is yours to spend on whatever you please… with one MASSIVE exception. You cannot spend it on anything that will create a bill – anything that will increase your cost of living.

When you’re first starting out in your career, you’ll use the 50/50 Rule with some discretion. There’s a point where you’re going to buy your first house and trade in your junker car for something far more reliable, so of course your cost of living will go up.

However, you’ll hit a point where you’ll have the house and you’ll have a reliable car. At that point you can diligently put the 50/50 Rule into play.

Of all the financial habits I’ve learned over the years, the 50/50 Rule is by far my favorite as it’s the epitome of Savvy Living, which is to build a strong financial foundation while enjoying the journey.

So, when you receive that tax refund this year, apply the 50/50 Rule to it and give yourself an opportunity to build wealth and also to enjoy it.


Melissa Tosetti is the founder of The Savvy Life and author of the international bestseller Living The Savvy Life. For the past eight years, she’s worked with over 525 individuals and families to create Spending Plans. Melissa also works with financial advisors and their clients doing cash flow planning as well as giving over 200 Savvy Living presentations via webinar and in-person to audiences across the U.S.

If you’d like to learn more about how Melissa works with clients visit The Savvy Life’s Programs page.

If you’d like to learn more about how Melissa works with financial advisors and their clients visit: The Savvy Life Advisor’s Page