Now that we’ve filed for our taxes and are waiting for that refund check from CRA, many people will start thinking about what they’re going to buy with that money.
Saving money is kind of like eating a healthy diet. You know you should do it, but it can be hard to resist making spur-of-the-moment choices that make you happier now, but worse off later. Your tax refund provides a great opportunity to put yourself into a better position for the future.
1. Create an emergency fund
Many Canadians don’t have an adequate savings account accessible in case of a sudden financial need. A lack of savings leaves you vulnerable to a job loss, medical emergency, or major repair. That may force you to seek out short-term loans at high interest rates, or carry credit card balances for an extended period of time. Using your refund to start an emergency fund will leave you breathing easier should one of those events arise.
2. Pay off your credit card balances
If you are carrying a credit card balance, consider using your tax refund to pay it off. Paying down your bad debt with a tax refund provides a guaranteed, after-tax, rate of return equal to your interest rate on the debt. Going this route allows you to put more money in the bank every month once those minimum payments are wiped out from your list of bills.
3. Prepay your mortgage
Making extra payments on your mortgage can be a great way to save money over the long term. Since so much of your payment goes to pay off the interest, reducing the principal can have an exponential effect over the life of the loan. Even an extra payment or two now can make a big difference in your future obligation to the bank!
4. Kickstart your career
Your tax refund can be the tool you need to take your career prospects to the next level. If you’re noticing that every co-worker getting promoted seem to have programming skills or experience working with databases, your refund check can go toward tuition for courses in those subjects.
5. Start your retirement fund
If you have room to contribute to your RRSP, your tax refund can provide cash for this purpose! This will result in additional tax savings for the deduction you’ll claim in the future.
6. Sign up for a Tax Free Savings Account (TFSA)
TFSA is a savings account where you can see your money grow absolutely tax-free! Every Canadian over the age of 18 should have a TFSA. Your tax refund can provide cash to make investments in this tax-sheltered account.
7. Contribute towards your children’s higher education
If you have children, you’d be doing them a huge favour by saving your refund into a college fund for their benefit. Setting up a RESP plan can help them afford a higher education. In this times of rising costs, many are burdened with massive debt along with their degree.
8. Buy life insurance
Life insurance can be easy to overlook, specially for young people who are confident that there’s plenty of time ahead. However — particularly for those who are married with families — a term life policy can provide protection for loved ones at a relatively low cost. For only a few hundred dollars, your tax refund can allow your family to maintain its standard of living in case the unthinkable happens.