Tax refund season is upon us again! Woohoo!!
Before you run out the door with your refund in your hand, hold your horses!... or rather, hold your spending impulses! As exciting as it is to be getting money outside of your regular income and budget allocations, these are the injections that can really make an impact on your long-term financial goals.
We understand how tempting it can be to go on a shopping spree or book a holiday, especially if you’ve been diligent about sticking to your budget and paying your bills on time. However, if you have been following our Money Tips allocating money for your ‘Wants’ (which covers occasional purchases and holidays) is money you can use for these sorts of things.
‘Unexpected money’ (money outside of your regular income such as tax refund, bonus or inheritance) is something we suggest that you don’t consider as part of your income or money to just spend. This money is a good opportunity to get ahead on your loans, widen your emergency fund coverage, allocate to savings or start investing.
When you receive ‘unexpected money’, the first thing we need to think about is where this money can make the most impact on your financial goals.
If you have existing debts or loans, we recommend that you consider making lump-sum payments to them first. This will not only shorten your loan period but will also save you wasting money on interest, possibly saving you hundreds of dollars in the long term.
Once you’ve paid the lump sum, keep making your regular payments as if no lump sum payment has been made at all. The sooner you can pay off your loans, the sooner you can allocate your ‘loan repayment’ funds to other sections of your budget such as investments and savings, or maybe even a holiday.
There is no fast-forward to success, but if you focus on your end goal and allocating all your ‘unexpected money’ where it will make the most difference, it’s a sure ticket to reaching your financial goals faster. Imagine being debt-free with savings, boy, that’s winning in the #debtfreecommunity right there!