6 Smart Things to Do With Your Tax Return
- Stop treating it like found money
Although most Canadians are happy to receive a
tax refund, there’s very little reason for celebration
– you’ve actually been giving CRA an interest-free
loan throughout the year. Instead of treating it like
found money, it is important to spend it prudently
and resist the temptation to splurge on material
items. - Pay down bad debts
If you have outstanding bills, credit card balances,
lines of credit, student loans etc. the smartest use
of your tax refund is to put it towards amounts
owing. Debts with the highest interest rate (usually
your credit card) should always be paid down first. - Top-up your rainy day savings
A rainy day or emergency fund is money set aside
to protect you when an unexpected event occurs
that affects your cash flow (i.e. job loss, home
repair, etc.) The rule of thumb is to have 3-6
months of expenses readily accessible, meaning
not invested. Without this safety net, just one
surprise major expense can not only be stressful
but send your financial situation into a downward
spiral. - Invest in your future
If you have the contribution room, use your tax
refund to top-up your TFSA or RRSP. Even small
amounts with the effects of compounding make a
big difference in the long-run. Contributing to your
RRSP will also provide additional tax savings from
the RRSP deduction you will get on your next
year's tax return - brilliant! - Put it towards a home improvement project
Your home is one of the most tax-efficient assets
there is.The principal residence exemption allows
Canadians to pay no tax when they sell their
house, so making improvements that add value is
always an excellent investment. - Treat yourself
Yes, it is ok to treat yourself! If you have paid down
debts, diligently saved throughout the year and
are on track towards your other financial goals,
use your refund to have a little fun. Go on vacation,
take your family out to a nice dinner, have a spa
day, whatever makes you happy. Just don't get
too carried away, remember that a $500 refund
does not justify a $2,000 trip.
Posted In: Taxes