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How to Make the Most of your Tax Return

April 5, 2018

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According to TurboTax, nearly 36% of Canadians plan to use their tax return to pay down or pay off an existing debt, while 32% intend to save it for a rainy day. A further 16% plan to spend a portion of their refund and invest the remainder.

Tax Return Money

What are you going to do with your return this year?

Although not everyone ends up with a refund after filing their annual income tax return, many people do, and it’s important to plan for how you are going to spend these funds in advance.

We’ve put together a list (in order of importance) of ways we recommend utilizing your refund this year to make the most of it:

  1. Apply it to debt

    We know this is not a particularly exciting way to spend your tax refund, but it’s probably the smartest. Credit cards, loans and lines of credit all charge interest, so the longer you take to pay them off, the more interest you’ll end up paying in the long run.

    Remember: If you still owe money on your winter hydro bill or have fallen behind on your cellphone bill, you’re going to have to pay that debt eventually, it may as well be now.

  2. Save it

    If you don’t have any outstanding debts and are lacking in the “emergency savings fund” department, add your tax refund to a Tax-Free Savings Account (TFSA) or a high-interest savings account. Most financial advisors suggest establishing a savings account that holds the equivalent of three months of living expenses in case of an emergency. In the event of a job loss, medical emergency or unexpected home/vehicle repairs, you will be happy you stashed your refund away for a rainy day.

  3. Invest it

    Take your tax return and invest it in a Registered Retirement Savings Plan (RRSP) and start planning for your future. Contributions made to your RRSPs also double as a tax-deductible expense so you’re basically ensuring another tax refund for next year by investing this year’s refund. Additionally, you’re saving for your retirement which is great for your future!

  4. Stop procrastinating

    If you are already debt free, and you’ve established both an emergency savings account and an RRSP, put some thought into what you need. Have you been putting off getting dental work done or rebuilding the worn-down front porch? Maybe you’re desperately in need of a new computer for school or work? Be realistic with your needs vs wants and prioritize them in a way that makes sense for you and your family.

  5. Treat yourself

    If you’re debt free, have established a substantial emergency savings account and RRSP and you still can’t think of anything you really need, it sounds like you deserve to reward your level of responsibility. Consider putting some of your tax refund away in savings or donating to a cause you feel passionately about, but don’t feel guilty about splurging for something you really want either. Hard work pays off, and you have clearly worked hard to get to where you are. Well done!

Although receiving your tax refund is a great feeling, this may not be the reality for everyone. If you owe money to the Canada Revenue Agency (CRA) this tax season, you may be stuck paying off a debt you weren’t expecting. Stay tuned for next week’s blog where we go over what to do if you’re left owing money to the CRA.

If you or someone you know is struggling financially, it’s important to ask for help early on. Our team of licensed professionals will work with you to evaluate your financial situation and discuss how each option will affect you, your payment requirements and other obligations. Allow us to make recommendations to develop successful strategies for achieving financial goals and overcoming setbacks.

Contact us today for your free, no-obligation consultation and get on the road to financial freedom.

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