Most people who get a tax refund consider it an unexpected windfall and can’t wait to spend it the second it hits their bank account. If you are fortunate enough to get a tax refund this year, it is wise to consider where your money is best spent given your current financial circumstances. Here are 5 smart ways to spend your tax refund:
Carrying high interest credit card debt is expensive and makes you feel like you are never getting ahead. Increasing interest rates also means interest on lines of credit are going up and costing more to carry. While paying off debt may not give you the immediate thrill of a shopping spree, it gives you piece of mind that you are doing the responsible thing that will save you money in the long run.
Utility companies like power, heating oil and phone carriers do charge late payment fees and interest on overdue accounts. Using your tax refund to pay these debts will help you finally get out of the red and into the black while avoiding interest charges.
If we learned anything from the pandemic, it was the importance of having an emergency fund for the series of unfortunate events that we can never predict. Creating a savings safety cushion reduces money worries and reduces anxiety. Putting the tax refund into a saving account, Tax Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) allows you to grow your money and sleep well at night knowing if something sudden happens, you are protected.
Higher education can be expensive. Planning for a child’s future early ensures they will not have to be burdened with a massive student loan debt. Deposit the refund into a Registered Education Savings Plan (RESP) and allow the money grow until needed. Don’t forget the added benefit that the Federal Government will also contribute an additional 20% on the first $2,500 contributed annually up to a maximum of $500 per year. That could add up to $7,200 over the lifetime of an RESP per child! Start saving for your child or even your grandchildren today.
There are always so many in need and your unexpected tax refund could go to good use helping those less fortunate. A registered charity will provide a tax slip that you could use for next years taxes which will help reduce your taxes payable and possibly generate a tax refund next year. It’s a win win situation!