A version of this blog post originally appeared on www.pacificawealth.com.

Have you heard the story of the newlyweds in Vegas?

A man and his bride travel to Vegas to get married. They have very little money. They have so little, in fact, that after a small service at a chapel off the Strip, a cheap bottle of wine, and a buffet dinner, the man reaches into his pocket and pulls out the last $5 to his name. Feeling lucky, he tucks his new wife into bed and tells her he’s going to try his luck at the slots.

He takes the elevator to the casino floor and finds himself lost in a sea of machines. He slips his $5 into one and pulls the lever. Bells ring and lights flash. We have a winner! The floor manager congratulates him on winning $65,000. Feeling euphoric, he stuffs his lucky $5 bill in his pocket and takes the rest of his win in chips.

The excitement of the spinning roulette wheel grabs his attention and he places his entire stack on red. Winner! Then black. Winner! What luck! Over the course of the evening, he grows $5 into $10 million. Just before sunrise, he places all $10 million of his chips on red. The balls spins, jumps, rolls, and lands... on black. Exhausted and now without chips, he makes his way back to his hotel room just as his bride wakes up. “How did you do?” she asks. “Not bad,” as he pulls the $5 from his pocket. “I broke even.”

I’ve always loved this fable. It painfully illustrates how not all money is created equally. A dollar won is not the same as a dollar earned. What does this have to do with your tax refund? Everything.

The average tax refund this year is $3,009. You worked hard for this money. You had to get up early, commute to your job, and put in long hours for this refund. You would never act as cavalier with this money as the gambler did. Or would you?

Mental accounting is a phrase from the field of behavioral finance, which describes our tendency to mentally compartmentalize money into different categories and to treat money differently depending on its source. Even though you’ve worked hard all year and the tax refund is your money, it may feel like “found” money when it comes in one big check. We know the value is the same, but somehow, a dollar we earn is "worth" more than the dollar we find. Research shows that those who won money in a radio contest were more likely to spend the money than those who earned it by working overtime*.

How can you put more value, weight, and gravitas on your tax refund windfall, making its value on par with the money you earn and the money in your retirement account? How can you avoid minimizing the value of your sudden wealth?

  1. Become aware. Want to view sudden wealth on par with earned money? Sometimes it’s as easy as simply becoming conscious of our tendency to put more weight on money we’ve “earned” and less weight on money we’ve “found.” After having this conversation with clients, I often see a shift in how they talk about their sudden wealth and their plans for it. They may lament earlier decisions of how they spent their money in light of their newfound perspective. Some have even laughed at how illogically they viewed their money, but nevertheless are grateful of their new understanding and appreciation.
  2. Get perspective. Calculate how many hours you worked in order to earn the tax refund. Or the next time you are about to make a purchase, calculate how many hours you would have to work to buy it. Then ask yourself if you’d really spend the money if you had to earn it. For further perspective, consider giving money to those with nothing to see how much they value it. I have a non-profit that supports orphans and disadvantaged kids. When I visited our project in Vietnam, one of our girls had a heart defect and was going to die. The cost for heart surgery? Just $400. (We paid for her surgery and she’s a happy and healthy girl today.)
  3. Create a play money account. When all else fails, embrace mental accounting! Take a small amount of your tax refund – an amount you can risk losing – and put it into a separate account earmarked as “mad money.” Put the rest of your sudden wealth in different accounts. If you want to undervalue your money, at least put a cap on what you’ll undervalue.

The consequences of valuing "found" money differently than "earned" money can be dramatic. Sudden wealth recipients are inclined to take more risks with found money, give it away more freely, and spend it faster and more lavishly.

To avoid this, follow the tips above, slow things down, and consider visiting a CERTIFIED FINANCIAL PLANNER™ professional who can help you manage your money wisely.

* The Psychology of Windfall Gains: Hal R. Arkes, Cynthia A. Joyner, Mark V. Pezzo. Organizational Behavior and Human Decision Processes 59, 331-347 (1994)