6 Ways to Use Your Tax Refund Effectively
Statera Financial Planners has a strong belief that the more neutral of a position your income tax outcome can be, the better. Because it means you have neither overpaid the government money too early - that could have been invested for your own benefit during that same time, nor underpaid – creating an unexpected expense.
Regardless of how we coach our financial planning clients to create that neutral outcome every tax season, it’ still true that people love getting a tax refund. Big or small, there’s an excitement but also a challenge to balance in deciding just what to do with it.
The best thing you can do is have a financial plan to help understand your needs and goals, long and short term. This will help ensure every decision has considered the consequences – good and bad – of how you implement your potential refund.
While a direct discussion with Statera Financial Planners is best to determine your own personal circumstance, here are six possible ways to use your tax refund effectively:
1. Pay off Credit Cards
A credit card balance is the worst kind of debt, due to typically high interest rates. Making minimum payments will only make purchases that much more expensive over the long run. Paying off credit card debt is a great first step for a tax refund.
2. Prepay the Mortgage
If you own a home, consider making a prepayment against the mortgage. Prepayments can help bring down the interest paid over the duration of the mortgage. This is especially helpful while variable rates remain higher. Check your mortgage contract to ensure that making extra payments won’t lead to penalties.
3. Load up the TFSA
A TFSA can be a great way to save for several potential goals with flexibility. Consider taking a portion of your tax refund and placing it in a TFSA to accumulate tax-free growth available for whatever need arises.
4. Contribute to your RRSP
A RRSP contribution creates a tax deduction, which could equate to your refund creating future refunds. If you can create the habit of reinvesting your refund, it’s a contribution that does not need to be taken out of your other monthly cashflow.
5. Renovate
Putting a portion of your tax refund to work in your home will help increase its value and build equity—if you choose the right projects. Check with a real estate professional and contractor for advice on putting your money in the right places.
6. Plan a Holiday
Life—like financial planning—is all about balance. You don’t have to forget about vacations when making smart choices for your tax refund. In planning and budgeting for your holiday, a portion of your tax refund could help get you there.
Statera Financial Planners can help you make the right choices for your tax return and for your financial wellbeing!
Some articles details from www.financialplanningforcanadians.ca