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It’s September, which means that some of us will be hearing those magic words this month: “Amount refundable to you by SARS”. When that SARS refund notification lands, it's hard not to read it as a bonus. The mind goes straight to the dinner out, the weekend away or the deposit on something you've had your eye on.
At the risk of raining on your parade, allow us to share an important reminder: this isn't free money. It's money SARS owes you after your tax position for the year has been assessed. With many household budgets already stretched thin, where this money goes is a serious decision, not a treat. Spent on impulse, it evaporates without making any impact. Allocated well, it can do some real work.
Here are a handful of ways that you can make your SARS refund work for you. Please remember that everyone's finances are different, which is why the ideas below are general guidance, not financial advice.
Why you should consider your high-interest debt first
Paying down high-interest debt is a powerful move, because every rand you clear is a rand that stops racking up interest. Wipe out a store card charging 22% a year, and you stop paying interest on the balance you've cleared. That's money staying in your pocket instead of going to a lender.
And the benefit doesn't stop there. Once that debt is cleared, the amount you were putting toward repayments every month is suddenly freed up. That's cash you can now redirect into savings or an investment.
That said, it doesn't have to be all or nothing. Depending on your circumstances, splitting the refund might make more sense. If you've got expensive debt but no safety net at all, you could put some money toward the debt and use some to start a small emergency fund, so an unexpected car repair or medical bill doesn't send you straight back to a credit card. The right move depends on your unique mix of debt, savings, circumstances and financial goals.
Why an emergency fund is always worth starting - or topping up
An emergency buffer can help stop a medical expense or an unexpected car repair from becoming a new debt spiral. If you don't have one yet, a refund is a great way to seed it. That might be the whole amount, or whatever portion you've set aside after paying down some debt.
The trick is where you keep it. Park it somewhere separate from your everyday account, where it is accessible when you genuinely need it but not so easy to dip into for everyday spending. This could be a separate savings account or another suitable savings product. The small extra step involved in accessing the money can help remove the temptation to raid it for non-emergencies.
Reinvesting what you've saved
If your high-interest debt is under control and you have an emergency buffer in place, you could consider putting some of your refund to work for the future. This is the part where a refund can become an investment in itself.
Topping up a tax-free savings account lets your money grow without being taxed on the returns. You can contribute up to R46,000 per year, up to a R500,000 lifetime limit.
Or you could put some of it into a retirement annuity. Qualifying retirement fund contributions are tax-deductible within certain limits, which could reduce your taxable income and potentially your tax bill.
When you're torn between sensible spending and fun
Doing all the responsible things and none of the enjoyable ones is exactly the kind of all-or-nothing thinking that makes people feel like handling their finances is a punishment. Luckily, you don't have to make it a choice between the two. You could split it instead. Send around 80% of your refund down the priority list and spend the remaining 20% on something that's yours to enjoy, guilt-free. The difference between this kind of treat and a full splurge is that it's deliberate. A treat you consciously chose beats a refund that dissolves into purchases you can’t remember two weeks from now. You could still get that dinner out and feel good about it, knowing that 80% of your money has been smartly allocated.
A rescue, not a reward
A refund treated as a reward disappears, while a refund treated as a rescue goes to work. Same few thousand rand, two completely different outcomes - and the only thing that separates them is the decision you make in the first day or two, before the money has a chance to feel like spending money. Whatever you decide, make it a conscious decision before the money simply disappears into everyday spending. And if you're unsure which option makes the most sense for your circumstances, speak to a financial adviser.