Are you expecting a tax refund this year? If so, have you thought about what you may do with it?
Maybe you've already decided what you're going to spend it on, but if not, now is the time to think about a plan (because it's amazing how fast your tax refund can disappear if you don't have a plan).
I know it's easy to spend money when you feel like you have it – but don't treat this cheque any differently than you would your paycheque from work. Think about your financial needs, and give your money a purpose.
Here are my recommendations for what to do with your tax refund:
1. Pay off high-interest debt: Any loans that carry high interest rates should be a priority for you to pay off. Use your tax refund to cut down your debt.
2. Spend it on something you need: Maybe you have old appliances sucking up your money (and energy), or maybe your laptop is acting up and you're due for a new one. Either way, ask yourself if you really need it, or just want it. If the answer is need, go for it.
3. Start, or top up, your emergency fund: How much you decide to put aside is up to you, but a refund is great seed money for that emergency fund you've been meaning to start. It's always a good idea to have some money set aside to cover your expenses for a few months when you're caught in a tight spot.
4. Invest in or contribute to your RRSP: Using your tax refund to make a contribution to your RRSP in the spring is a fantastic idea. Why? You can relish in (almost) a full year of potential growth on your RRSP. Even more so, you'll be stress free when the deadline to contribute comes around. For more information on contributing to your RRSP, visit www.cra-arc.gc.ca/rrsp
5. Invest in or contribute to your TFSA: Your tax refund is also a great way to get started on (or top up) your Tax-Free Savings Account. If you haven't contributed to a TFSA since 2009, you are eligible to contribute up to $41,000. Enjoy the growth in your TFSA, and withdrawals, tax-free. For more information on TFSAs, head to www.cra-arc.gc.ca/tfsa
6. Contribute to an RESP: Contributing to a Registered Education Savings Plan (RESP) is like a gift that keeps on giving -- make a contribution and the government will also contribute money toward your child's (or grandchild's) education.
7. Give back to charity: If you're on a tight budget, making charitable donations is probably one of your last priorities, but it doesn't have to be! Use your refund as a way to give back. Giving to charity will benefit your community (and your soul), and you can claim the tax deduction.
8. Take care of yourself: Whether its signing up for a gym membership, buying a package of workout classes, getting new workout clothes, or finding a therapist – if it keeps you motivated and betters you in the long run (emotionally or physically), then I say go for it.
Next week I'll share what not to do with your tax refund.