A great day has arrived; your tax refund is here! Good on you, because you took advantage of tax credits, you contributed more money to your Registered Retirement Savings Plan (RRSP) and you claimed the GST/HST rebate this year.
Now the vexing question – what on earth do you do with the money?
Instead of rushing out and buying that expensive new tech toy or blowing everything and maybe a bit more on a vacation, consider these alternatives or any combination of them to spend your tax refund wisely.
Pay off credit card debt
Yes, maybe boring, but the sooner you rid yourself of consumer debt the sooner you can enjoy the money you make. The money you don’t have to pay others is the money you can keep for yourself. Then maybe you can take that trip.
Save for retirement
Financial article after article tells us we aren’t saving nearly enough for retirement so consider using your tax refund to pay for your future self. 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 next year.
Start an emergency fund
When you least expect it, the car will need new brakes or the air conditioner won’t work this summer. Instead of putting these emergencies on credit use your tax refund to build up a small emergency fund to plan for the unplanned. Even just $1,000 stashed away is far better than having no money at all when you need it most.
Make an extra mortgage payment
Making just one mortgage prepayment you’ll likely reduce the interest paid over the life of your mortgage by thousands of dollars.
Invest in you
Want to improve your skills for the workplace? Want to turn your hobby into some side-income? Want to start a blog? Consider using your tax refund for a workshop or course to improve or learn new skills. Investments in you are always worthwhile.
Don’t take the tax refund and run. Consider these alternatives to use your refund wisely and make 2014 a brighter year.
I encourage you to share these posts and tell others to join the 1,000+ readers who receive every post; join 2,300+ Twitter followers; add me to your Google+ profile and be a fan of My Own Advisor on Facebook. I appreciate the support and I enjoy hearing from you.
I’m not getting a refund. Instead, I’ll owe some money to the CRA. However, if I was getting a refund, I’d invest it into my future retirement by putting it in the RRSP. It’s helpful for next year’s taxes, too.
Sorry to hear. I think re-investing the refund into the RRSP is always a good call, or paying down debt. We put some on our mortgage and re-invested some back into our RRSP.
Great post Mark! Mine is going to number 1… Credit Card debt!
You and likely others Paul…I find transactions are just too easy with the CC. Thanks for stopping by!
Yeah my tax refund plans backfired one me since I ended up having to pay taxes for the first time this year.
Ouch. Sorry to hear. Well, when my RRSP contribution is gone I don’t know what I’ll do…hopefully that is a few years away though. Did you have to pay lots?
Had to pay almost $900, which isn’t a huge deal.
My RRSP is near maxed, I have DB plan, I had some capital gains on some investments and I think my employer stock plan is a taxable benefit.
Overall I did alright, just hurts to have to pay someone.
Sounds like you’re doing very well Barry. I’m close to maxing out the RRSP, also because, the DB plan kicks in a bit and reduces contribution room, that’s a very good thing and I’m fortunate to have it.
I suspect in the next two years I’ll be out of RRSP contribution room. I guess that’s a great problem to have.
Life is about balance, and at his time of the year we generally have higher living expenses, so our refund went to offset those expenses – next years family seasons ski pass ($1,100), my sons annual karate membership ($1,200), our home,chalet and car insurance ($2,400), a couple of fun money things to reward ourselves on once again living on less than we have coming in, while achieving our short and long term investing goals, as laid out the previous year. – Cheers.
Very much so Phil, my wife and I are always trying to strike the right balance.
The ski passes, karate memberships and insurance adds up for sure. Then again, you gotta live and some of those things are doing just that.
My wife and I have a few long weekend vacations planed this year, that should be fun.
Happy yo say, no refund again this year and think I have taken advantage of all of the tax credits. Prefer not to give it to the government before I need to, pretty selfish I know.
Nothing wrong with that Chris, if I understand your stance. The thing is, a tax refund is really a government loan. You’ve overpaid, or over-contributed via tax credits and deductions to get money back in return. Nothing wrong with a tax refund but a big one means you’ve giving them a loan every year. Maybe better to optimize taxes vs. maximize tax refunds. This is especially true if you spend all your refund on stuff and not investing.
I had a sizable refund this year. I put $1,000 towards my credit card, $1,000 towards my emergency fund and $500 slush fund. Remaining $70 was my fun money which contributed towards new baseball shoes allowing me to continue playing ball thus, keeping me healthy! 😀
I hope to write a post about what we spent our refund on this year, in another week or so. Most of it went back into our RRSPs, some went to TFSA, a little bit we had some fun with. It was a balanced approach. I guess you have a preview of my 500-word post, early.
Great minds think alike then! 🙂
With interest i read that Kat has decided to put a portion to CC debt and the rest to emergency/slush. Given CC debt is usually in the 20% interest range why not put everything on CC debt and use the CC for emergency in the event it is required. Without trying to be judgemental as to why there is CC debt to begin with I personally think it is the biggest detriment to young people building wealth.
It’s hard to know why Kat did that. Maybe there are some needs coming up soon and Kat wanted to put the money there (slush) in advance. Maybe Kat knows the CC will be paid off soon and the debt is now minimal. Could be many reasons. I try not to be too judgemental on this site. I’m far from perfect with my money.
Where we agree is, debt in general is the biggest detriment to youth. If they can get control of that early, they are on the right track and every little bit helps.