Tax returns, bonuses & redundancies: How should you manage a lump sum?

Every now and then, we might have a financial windfall. It can be a good thing - like a bonus, a prize win, maybe even the lottery! Or something that’s less fun, like a redundancy payment. With a few of our community members receiving their tax refunds lately and asking us what they should be doing, we thought it was worth digging into our non-negotiables when considering what to do with the money.

First, be cautious and understand the tax implications
Tax implications vary wildly depending on the way you received this money. Tax refunds, and prize money aren’t taxed. While we don’t have inheritance tax in Australia, you might get a tax bill depending on what you receive - if ownership of assets are changing hands for example. Other things like redundancy payments or bonuses, do have specific tax considerations. As always, we suggest calling a tax specialist.

The Value of Time
The first thing we’d recommend doing? Transferring that money to a high-interest savings account, and avoid making any big decisions! Immediate, impulsive decisions can lead to long term regrets. Placing the money somewhere safe temporarily can provide time for thoughtful planning.

Invest Wisely
Have a think about where you’d like to spend the money. It’s rare you’ll be receiving so much that you can make significant investment decisions (like buying a house) so think about what you can do that will make a difference. Prioritise paying off debts, especially those with high interest rates, or if you want a psychological win, use the Ramsey method and wipe out a small debt. If you want to look to sustainable investments, think about topping up your superannuation.

Have we missed anything? Catch up with the latest episode of Get Started Investing now, and let us know what rules you follow if you’ve received a financial windfall.

Salary sacrificing your way to a home deposit…

Last week, after reading that 84% of Australians don’t salary sacrifice we asked the Equity Mates community if it’s part of your financial plan.

58.46% of you who responded to our poll said they did salary sacrifice in some form. That’s waaaay above the average!

Here’s some of the responses you submitted:

But it’s important to say - don’t feel bad or judge yourself if you can’t add or top up that extra at the moment. We know that times are tough. As one of our community members said:

It's something I've had on my mind for a little while. If only the RBA would give cut me a break so that I could afford it and still sleep at night!

A few of you also are putting extra contributions in to bump up your savings for that first home, like this community member:

Currently doing so as part of the first home buyer super saver scheme.

You’re in good company, cause ICYMI, both Ren and Bryce have recently become first home owners, both talking about their process on recent episodes of Equity Mates (here and here if you’re curious) and saving for a home deposit is a goal of many of our community. In our most recent Thoughtstarters email, we talked about a study that said up to 60% of 25 - 34 year old homebuyers are receiving family money to afford a downpayment.

It got us wondering about the Equity Mates community…