By Kerri Anne Renzulli
March 1, 2018

Tax season may be a headache, but for many Americans it has a happy ending. The average filer received $2,763 as a refund from the IRS last year—for many people, one of the largest one-off checks they get each year.

What you do with that money matters, though. And while many people say they do put that refund into savings, behavioral research suggests that there’s a concrete way to stash away more of that cash—guaranteeing you an extra layer of padding in your bank account.

The Common Cents Lab, a financial research team at Duke University, partnered with savings app Digit in an effort to increase the share of each tax refund that people actually squirrel away. One set of Digit users was asked to put that money in savings when they received their tax returns; that group wound up putting aside 17% of the check. The other users were asked to save before they’d even filed their taxes; this second group stashed away a much larger 27% of their checks.

On the average return, that advance planning would yield $746 a year in savings. Over 30 years, if you invest that money and get a 5% annualized return—roughly what a 50% stock/50% bond portfolio would provide, after inflation—you’d wind up with close to $51,000.

Researchers chalk up the difference in behavior to the natural optimism that people feel about their future behavior. “In the future we are our perfect selves,” the study’s authors write. Things only change once the money reaches the bank account. “People are likely to make better long-term decisions if they pre-commit … before they have to face the consequences of a decision,” the authors note.

Fortunately, taxpayers can take advantage of their own pre-filing optimism. If you file a paper return, use tax form 8888 to split your refund between accounts, carving off a chunk for savings. (If you’re using IRS Free File or other tax software, you can simply choose electronically to split your refund.)

By deciding in advance to move some of your refund money into a separate account, you take some of the pressure off yourself. If the money never turns up in your day-to-day account, you won’t end up using more than you intended for household spending—or splurging on an unplanned purchase.

You don’t even have to cap yourself at 27%.

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