By Edwin Theron
With tax filing having closed early November, your tax refund would have made its way to you. The best thing about a tax refund is that it’s ‘extra’ money that you didn’t consider in your budget!
Saving money is like maintaining a balanced diet - pre-planning is a must as spur-of-the-moment decisions usually mean regret the next day!
A tax refund presents a good opportunity to improve your situation going forward. The key is to find that balance between short-term enjoyment and long-term priorities.
Here are a few ideas to help you make good decisions:
1. Have a date night/weekend
How long has it been since you and your partner last enjoyed a date night? A little return might mean a night out at your favourite local restaurant, while a larger one might pay for a weekend away.
Tip: Rewarding yourself for your hard work is just as important as being prudent with your funds. The size of the spoil should depend on the refund - spend a small proportion on a dinner or night away and put the rest away as per the tips below.
2. Create an emergency fund
The one thing we have all come to learn these last few years is that life is unpredictable. Most financial experts agree that people should ideally try to have between 3 and 6 months’ worth of income set aside in a rainy-day fund. If you haven’t achieved that yet, a tax refund is a wonderful opportunity to grow your emergency fund and make yourself more resilient for whatever life can throw at us.
3. Top up your savings
If you already have an emergency fund and you’ve either applied money toward debt or don’t have any debt, use your tax refund to jump-start your savings.
Tip: Money management for large expenditures is made simpler and you're less inclined to use it for splurges when the funds are kept separate from your usual bank accounts.
4. Community Service
Fun and responsibility combined: While treating yourself and improving your financial situation is fun (and vital), you may be in a good position and want to assist those who are less fortunate. For everyone, the last few years have been difficult so, if you can, consider giving your return to a local organisation or small business. No matter how big or small, helping others can be very fulfilling.
Tip: In addition to doing good, if you donate to a registered NGO, you can add your donation as a tax deduction.
5. Don’t spend it all at once
And lastly, think carefully before you start an internet shopping binge or set aside money for a large purchase. Economically speaking, these are difficult times. Yes, you should reward yourself, but perhaps now is a better time to spend your money on something dull and sensible. Later, you could thank yourself.
Edwin Theron is the CEO at Sanlam Indie
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