This is an updated post on managing your tax refund.
Congratulations – because you took advantage of tax credits and deductions, and you contributed more money to your Registered Retirement Savings Plan (RRSP) this past year – you got a tax refund back. Now the vexing question – what should you do with your tax refund? Instead of rushing out to blow your new found windfall (and you could of course!) consider these alternatives to spend your tax refund wisely this year.
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 or spend for yourself.
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. 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, emergencies happen. Things break down or need to be replaced. Instead of borrowing money during an emergency, consider using your tax refund to increase your emergency fund for the unplanned. Whether that amount is $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.
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.
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.
Don’t just take the money and run. Consider these alternatives to use your tax refund wisely this year.
Did you get a tax refund this year? What did you do with the money?