15 Tips To Make The Most of Your Tax Refund
It’s tax refund time and you just got a fat cheque
When your tax refund comes in the post, your first thought might be to book that much-needed vacation to Aruba. While it’s always nice to get away, there are probably more important things you could be spending the money on than a suntan and margaritas.
Here are 15 alternatives to consider before heading for the beach:
1. Get overdue bills off your back
If you’re struggling to make ends meet, a tax refund can be a lifesaver. If you’re behind on mortgage or car payments, this is your chance to get caught up. Using your refund this way will also help repair damage done to your credit score, which will give you better leverage when negotiating a mortgage renewal or other loans.
2. Increase your monthly income
Pay off high interest debt. If you are carrying credit card debt or a high interest payday loan, this is your chance to get it off your back. Even if it’s not enough to completely pay off the whole debt, it will at least make your monthly payments more manageable and free up more cash.
If you are carrying a payday loan, be sure you know all your options to reduce your interest payments, including our much more affordable alternative called the Cash Crunch Loan.
3. Become emergency-proof
Increase or start your emergency fund. Keep adding to it so you can cope when that emergency strikes. Earn investment income tax-free on your emergency fund with a Tax-Free Savings Account.
4. Invest in your kids’ future
Opening an RESP for your children is the best way to prepare them financially for further education.
It’s a tax-deferred savings account, with no tax paid on interest made. You can keep making contributions up to $50,000 per child. The government will boost it by up to $7,200, growing your kids’ college fund even more.
5. Spend it on something you really need
Think about the essential expenditures you may have been putting off due to a lack of funds. Do you need dental work, a new furnace, or a new car? Use your refund to pay for it, or as a large down payment so your monthly repayment costs are more manageable.
6. Put it towards a relaxing retirement
Use the money to invest in an RRSP, a tax-deductible, registered retirement plan and start on the road to a comfortable retirement. Funds in your RRSP can be invested in a range of options. Tax is paid only when you withdraw money, by which point you’ll probably be in a much lower tax bracket.
7. Save the planet - and your money
Making your home more energy efficient helps reduce carbon emissions and heating bills and gets you rebates. Alberta Home Improvement Rebates are worth up to $6,000. You can also get rebates for replacing old appliances. See efficiencyalberta.ca for details.
8. Get on the path to being a millionaire
Start up your portfolio of investments with online trading through Qtrade Investor. The sooner you start, the sooner your investments will grow and using your tax refund is a great way to build a solid portfolio.
9. Get your spending in order
If you have never worked towards a budget before, now is the perfect time to start. Break down your expenses.
Create a savings fund and work out how much you can allocate to it.
Use some or all of your refund to get your savings going. It can be a good incentive to start good habits and put you on the road to financial security.
10. Sleep better at night
Saving isn’t the only financially sound thing to do with your tax windfall. Insuring yourself and your family against the unexpected could be your best investment.
Life insurance and critical illness/disability insurance will bring you peace of mind, knowing you and your loved ones are financially protected if you die or can no longer work.
11. Feel good by doing good
You may find it hard to give regularly to charities if you rarely have spare cash. Your tax refund gives you a good opportunity to help your favorite charitable cause. As well as helping others and making you feel warm inside, your charitable donations are also tax-deductible.
12. Use it to build your dream
If you have a great business idea, put your tax refund aside to help get it off the ground. You’ll probably need to borrow money to get started as well, but the more money you can put into the business yourself, the less debt you’ll have when you start up.
13. Start saving for a home or pay off your mortgage faster
Down payments can be tens of thousands of dollars - use your tax refund to give your down payment savings a head start. If you have a mortgage, use your refund to pay down the principal every year and pay off your mortgage much faster.
14. Invest in yourself
Now is a great time to invest in your career by taking a course that provides you with skills that make you more marketable. If it is a work-related skill, you could put yourself in contention for a promotion and a raise. Or you could learn skills that lead to a new job or a self-employed career.
15. Buy an experience
We know we said that there are better ways to spend your tax refund than by taking a vacation. However, studies show that experiential purchases like vacations, classes or a road trip make us happier for longer than buying material things.
Taking a vacation is a great way to recharge your batteries and get reenergized.
As long as your refund covers the whole cost, you get to spend it on yourself without going into debt.
Whatever you decide, be sure to take our team up on a free review of your finances. A strong financial plan will set you up for long term success, and our teams are (at the) ready to help guide you on the best use of your tax refund for your personal situation, your short term and your long term goals.
Talk to us! We’ll help you get the most out of your tax refund.
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