How we spent our tax refund this year – 2018
Some time ago I offered up a simple question for readers to consider: What would you do with $1,000?
In that article I shared what I’d do with that tidy sum if it found me.
Well, many weeks ago – we got our tax refund back. And while it was more than $1,000 it certainly wasn’t found money. Far from it. A tax refund is a mixed blessing really. On the good side, we were given money back. On the downside, a tax refund means we just gave our government an interest-free loan over the last year.
On that note, I think getting a huge tax refund is undesirable and many Canadians should not welcome this although I know many people do.
Before I share what we did with our tax refund in 2018, here are some of the great things you can do with yours if not already spent!
1. Pay off credit card debt
Yes, boring, but the sooner you rid yourself of consumer debt the sooner you can enjoy the money you make. I always believe the money you don’t have to pay others is the money you get to keep for yourself – isn’t that better?
2. Save for retirement
Article after article highlights most of us aren’t saving nearly enough for retirement. After your credit card debt is zero, consider using your tax refund to pay for your future self. We do this but your mileage might vary. We believe saving for tomorrow is not only smart but if you sock some or most of your tax refund into your RRSP, you’ll be well on your way to getting an even bigger tax refund to cycle into your RRSP next year.
3. Start an emergency fund
When you least expect it, emergencies happen. Our fridge recently died. That sucks but I’m glad we have a small emergency fund to cover the expense. Whether your emergency fund is valued at $1,000, $5,000, $10,000 or more, a separate fund to draw from when you need it the most will provide piece of mind.
4. Make an extra mortgage payment
By making just one mortgage prepayment you’ll likely save the interest paid over the life of your mortgage by thousands of dollars.
5. Invest in you
Want to improve your skills for the workplace? Want to turn your hobby into some side-income? Consider using your tax refund to invest in the most important asset you’ll ever own – you. Investments in you are always worthwhile.
6. Invest inside your TFSA
The Tax Free Savings Account is a gift to every adult Canadian! Consider using your tax refund to invest inside this account – since there are many great things you can do with your TFSA.
Sure, there are more options but these are solid choices near the top of my list.
What did we do this year? Did we eat our own cooking? You bet.
Since we’ve decided to make a major lifestyle change next year, we decided to throw almost every penny on existing mortgage debt. We believe paying down our mortgage is one of the best investments we can make. Sure, you might argue a mortgage rate below 3% is peanuts (and we could get a far greater return on our investments; beyond 3% when invested in equities) but last time I checked few people ever went broke without being in debt.
This decision also aligns very nicely with these financials goals with our TFSAs already maxed out and fully invested in many Canadian dividend paying stocks. My RRSP is also out of contribution room.
When it comes to saving and investing, our principles are boring and rather simple but I’ve learned being boring when it comes to money management is exactly the right thing to do to be successful long-term. This year our tax refund was directed to debt. Next year it might be different. Stay tuned to this channel to learn about what we do in future tax refund years; as we strive to build wealth and rid of ourselves of debt at the same time.
How did you spend your tax refund this year? What do you make of our choices?