Tax time can be a windfall of money for many people, and it can only come down to three words no matter what you do.
Most of you might be looking forward to cash injection during this tax time. The ATO has announced tax cuts during the last year, which means over 10 million Aussies are likely to receive a bonus of $1080 included in their tax refund, while some people might even get as high as $2600 on an average.
According to the recent research associated with the commonwealth Bank, most people are likely to use this extra cash depending upon the word used alongside their tax refund statement.
It is found that a taxpayer is likely to save their return if the tax return is described as a “return” or “rebate” or “refund,” while they are more likely to spend if it is stated as a “free” or “extra” or “bonus.”
According to behavioral economics, people who consider a tax return a bonus are likely to spend all of it. But if we believe that the money coming around during the tax time is a return of our own money, then most of us are likely to account for and save that money.
A study was conducted to look at how people behaved when provided a $30 payment, either marked as a rebate or a bonus. Over 80% of the participants in the rebate group saved $30, while only 20% of the bonus group were able to save their total refund.
According to Mr. Mailer, the behavior of people associated with cash depends upon what language is used or how they have approached the windfall of cash.
As you already know that the behavior of people can be sensitive towards the things represented to them. For instance, if you receive a bonus of $100 for a month, most people are likely to spend it over daily expenses.
On the other hand, if you get a lump sum of $1500, you won’t treat the money in the same way because it feels like bonus money or extra money. That means most of you might even spend the money faster without being thoughtful about it.
To prevent this vicious spending trap, an expert like Mr. Mailer has offered simple advice of pre-commit.
It would be helpful for you to pre-decide what you will do with that cash and ensure to follow some steps to stick with the decision, whether you want to add that money into your emergency fund or use it for paying off your debts.
He also suggested making minor changes to your daily banking habits as it will help in saving money without any effort.
For instance, depositing that money into your savings account and connecting it with your meaningful goal. All those small efforts make us more mindful about who we spend or save our money.