I love tax time. Odd, isn’t it.
The reason being we always get a tax refund and it’s usually a couple of grand each. Except for this year I was on maternity leave and earned way under the threshold for paying tax in Australia. And as we left the country five months into the financial year Dave didn’t earn much. Which is a long way of saying we weren’t expecting much this year.
We did get an invoice of nearly 2k to prepare our New Zealand tax returns – that’s high but covers our rental properties and all of the sales and settlements due to earthquakes during the financial period, so it was a lot of work for the accountant. I hoped that Dave’s Australia refund would be enough to pay the New Zealand accountant bill so we wouldn’t be out-of-pocket.
Once all the New Zealand paperwork was submitted to the Australian accountant I sat back and hoped. We are travelling and have a small income and savings to sustain us; I hate the thought of dipping into those funds for something as boring as an accounting bill.
Late Friday I got an email from our wonderful accountant in Sydney. ‘Your tax return is $8,002, where do you want it to be deposited’. Wonderful. We can pay the accountant in Christchurch.
But that still leaves six thousand dollars we weren’t expecting, quite the unexpected windfall. I initially considered putting it in the travel fund. That would have been nice, but rather irresponsible, considering we have a travel fund, and an income – that 6k could go a lot further somewhere else. So I started researching, at my favourite money blog getrichslowly.org
JD Roth – founder of the blog has a system for dealing with windfalls that resonates with me.
1. Keep a percentage to treat yourself and your family – JD recommends 5% which feels like enough to treat yourself properly.
2. Pay any taxes due – we were Pay As You Earn employees during this period so outstanding tax is not a problem for us.
3. Pay off debt – this seems to be the smartest thing to do in our situation. We have a mortgage on our own home of $184,267. Whilst that’s completely manageable I would like to eliminate that debt all together so renting our house out can become an income stream while we travel long-term. Plus with interest rates rising, reducing the principle on our loan means a shorter term. According to this awesome mortgage calculator putting 5 grand on our mortgage will save us $18,270.02 and 19 months of payments.
4. Fix the things that are broken – Luckily nothing is broken – now. But we have emergency funds for the unpredictable like roof leaks or sudden storm damage. Adding to your emergency fund is an excellent use of extra cash.
5. Deposit the rest of the money in a safe account – A good idea if you have a large windfall and since our emergency account is looking a little paltry, we’ll put the remaining $1000 into our emergency fund.
6. Make a wish list – self-explanatory really, however, all my wishes are currently fulfilled. I am living on the beach in Mexico, eating delicious and cheap tacos daily and spending all day with my two favourite people in the world, no item on a wish list could beat what I’ve got now.
7. Invest in a money-saving tool – Buying something that’ll save you money in the long run, like a quality slow cooker for reducing the cost of your weekly grocery bill or a bike so you can reduce your car usage is a smart way to use extra money.
I am excited to email our bank manager this week and tell her to transfer the lump sum payment to our loan. This fits ideally with our goal to pay off our house within ten years so it becomes an asset that can provide a home and income, depending on our needs at the time. In the meantime I can sit back and relax on the beach in Mexico knowing our time away is not sending us backwards financially. It is indeed a wonderful life.