Why is my Income Tax Bill Suddenly so high in 2016! Your Emergency Fund to the Rescue?

I received a message yesterday night evening with a good friend, exclaiming how come her income tax payable received this year is so much higher.

For a person who does budgeting, this is a jolt to her envelope budgeting system.

I am sure you guys and gals would also have more acquaintances exclaiming the same thing, scolding the good for nothing garment for jacking up the taxes with nothing to show for.

No more Income Tax Rebate

In 2015 budget, the government gave an income tax rebate of up to $1000.

As part of SG50 Jubilee celebration, all tax resident individuals will receive an income tax rebate of 50% of tax payable, up to a cap of $1,000, for the Year of Assessment 2015.

If you fall within that tax bracket, you will see your tax payable halved.

Usually these tax rebates do not happen every year.

Your brain seldom remember these useless things

Unless you are a money nerd like myself, or keep in touch with these things, you tend to remember what happens on your Facebook feed more than useless things like these.

We tend to remember things that recur more.

Is this an “Emergency”?

We always advocate saving up a 3-6 months worth of cash that is liquid, in the event of “unforeseen circumstances” (Read my comprehensive Emergency Fund Guide)

During these emergencies, you can tap on this Emergency fund

It is certainly unforeseen in the case of my friend, but that is because each of us have a different level of awareness of such things.

Emergency fund is also PARTLY for a person’s lack of awareness, whether deliberate or not. It is also for real low probability events that you have never factor into your life.

Learn from this, and next time save up more monthly, for a $1000 income tax by allocating $1000/12 monthly in an “envelope” instead of being shocked every time such a bill comes.

Your life will be filled with a lot of these shocks due to your lack of awareness.

Over time, your emergency fund should be used less for these lack of awareness shocks.

What if you do not have an emergency fund because your monthly cash flow is tight?

3 months ago, I specifically advised a friend that his income tax will look very different from last year.

I can roughly estimate his cash flow, and I know its tight.

These things are nasty shocks for folks with no slack between their disposable income and monthly expenses.

If you cannot afford an emergency fund, you better be sure every dollar of what you earn, where it will be going.

A very seductive solution would be to tap the credit card, or credit lines.

A better way: Punish yourself for the lack of awareness.

If you are due to purchase something for your happiness, take it away from you by channeling it to pay this down.

One example is to forgo an upcoming holiday.

This way you reduce the problem, do not get too deep in debt and make yourself remember this important lesson.

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