Tax season is here again and for some, this will create an unexpected windfall. Along with a tax refund, windfalls can come in the way of a work bonus, an inheritance, a second household income, or even by ridding ourselves of extra possessions via Gumtree!
How we view these windfalls will often determine what we then decide to do with these ‘extra’ funds. For example, do we see our tax refund and other windfalls as hard earned money that should be directed to a responsible purpose, or is it a lucky break that lets us indulge ourselves? For many of us, the answer probably lies a little in each of these options.
While it is important to treat ourselves every now and again, a windfall can also create an opportunity to help build (or strengthen) our financial foundations to achieve more of our long-term goals that might otherwise have been possible.
Your tax refund might give you the option of creating a dream holiday account, reducing your mortgage or making a voluntary superannuation contribution. It might help you set up a rainy day fund, and give you the extra peace of mind you’ve been looking for. Alternatively, you may choose to gift the money to someone close to you, to create a legacy, or make a special charitable contribution.
Without a deliberate purpose for these types of lump sums, we tend to overspend when they arrive as we will spend the actual tax refund money, but we will also tend to blow our budget in other areas as we will feel a little more financially comfortable than we were before the money arrived and become looser with our spending.
Windfalls like tax refunds are also a timely occasion to initiate a catch up with us, as your financial adviser. We can revisit your plan and perhaps fast-track some of your goals, or even add new ones that might otherwise have seemed out of reach before.
To calculate what this money could be worth if invested or paid off debt, you can use our Calculators.
So for those with a tax refund or special windfalls on the way – enjoy – and we hope that you make the most of your money, in whatever way you choose.