At this time of year, we’re all doing our (legal) duty to file our taxes and make sure our contributions to the Federal and Provincial budgets are properly accounted for. If you’ve made your regular payments and calculated your eligible credits and deductions, there’s a chance you’ll be seeing a refund coming to you from CRA shortly. One thing I’ve seen plenty of in my role is people spending their income tax refund in a way that doesn’t help them grow their wealth or better their financial position.
Here are a few ways you can wisely put this year’s income tax refund to good use.
Debt
If you have high-interest debt balances, this should be the first place you spend that income tax refund. Anyone who advises otherwise is giving you downright bad advice. Ridding yourself of high-interest debt allows you to tackle your financial goals instead of spending time, energy, and money paying off what you owe to others rather than paying yourself.
TFSA
On January 1st you earned another $7000 in new contribution room to your Tax-Free Savings Account. You just finished counting your taxes, so why not take the opportunity the TFSA presents to you to watch your savings grow tax-free?
RRSP
If you make regular contributions to your Registered Retirement Savings Plan, part of your income tax refund is likely generated from the income tax deduction you receive for your RRSP contributions. You’re making headway on your retirement goals and that’s amazing. It’s a great idea to continue those good retirement savings habits and get a head start on next year’s income tax deduction by putting your refund into your RRSP.
Home Maintenance and Car Repairs
It’s ok if you’ve flagged this year’s income tax refund to cover the costs of maintenance to your home or a necessary car repair. These things are known costs with owning a home or a vehicle and if you haven’t set aside money to cover those expected-but-unplanned expenses then your income tax refund is great for paying these costs instead of using credit.
Family Fun
Healthy family relationships can keep us centered and grounded in what matters most when we deal with the inevitable difficulties life throws at us year after year. Taking the opportunity presented by an income tax refund to nurture those relationships and shed some of life’s stresses is a wise investment. Spending your income tax refund this way may not grow your long-term wealth, but you can always earn more money and you can’t earn more time with your loved ones.
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