Many Canadians receive tax refunds every year, and no, the government isn't giving you a refund this year because they really like you. In reality, you have just paid too much tax last year and now they're giving you back the surplus. Some refunds can be pretty small, but some can be quite large. Now the challenge is deciding what to do with this new found money. As a financial advisor, most often I have boring advice when it comes to tax refunds that include investing it or paying off debt, but life is all about balance and sometime you just have to treat yourself.
Everyone has a different set of circumstances with different financial and life goals, so there is no one thing that everyone must do. If unsure, an experienced financial planner can help. Here's a list of several things to do with your tax refunds, and although some are purely from a financially responsible perspective, some alternative options should also be considered.
#1- Pay off high interest debt!
-high interest debt, especially from credit cards will eat away at your wallet making some inexpensive things very expensive in the long run.
#2- Pay down your mortgage!
-any time you're able to make additional principal payments on your mortgage is a wonderful idea to lower your total mortgage amount and decrease the amortization.
#3- Invest your refund!
-since this is extra money that should have been in your bank account all year, put it back to work and make a lump sum investment into a TFSA or RRSP and enjoy the tax benefits of either of these registered accounts. Make a habit of this every year and watch the power of compounding interest grow this into a substantial nest egg.
#4- Donate to a charity!
-this would be the most socially responsible thing to do, especially if you have no need for the refund and are passionate about a certain cause. There are also charitable tax credits available for any donations to a registered charity to offset the amount donated as well.
#5- Renovate your property!
-putting money back into your home is a great way to increase the value of your home. Be careful though, as not every renovation adds much value to your property, especially if it's not done properly.
#6- Treat Yo'self!
-as mentioned before, life is all about balance and sometimes treating yourself can be just as important as being financially responsible. Take a holiday, buy a new vehicle or flat screen TV, get some new clothes, or do whatever might make you happy and take a little stress out of your life.
Still not sure what to do? Don't panic, we are always here to lend a helping hand with experienced, honest, and trustworthy financial advice.
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