Yay, you got your taxes done! If you’re expecting a refund, the big question is: how will you use it?
Angela Iermieri,* a financial planner with Desjardins Group, has some suggestions.
1. Pay off your debt to make ends meet more easily
By reducing your debt, especially high-interest credit cards and lines of credit, you’ll pay less interest.
If you have trouble paying the balance, ask your financial institution about possible financing options that would allow you to pay off your debt faster.
2. Build an emergency fund to protect you when the unexpected hits
An emergency fund is money you put aside in case something unexpected happens. This will keep you from having to turn to high-interest credit and quickly racking up debt. The general recommendation is to save enough money to cover 3 to 6 months of living expenses.
Start with your tax refund and add small amounts on a regular basis; over time, you’ll see a big difference. The best way to do that is to set up a dedicated account, like our Savings Account.
3. Open an RESP to help your kids or grandkids get a post-secondary education
The sooner you open a registered education savings plan (RESP), the more time your investments will have to grow, tax-free.
And matching government grants will boost your education savings even more.
4. Put more money in your RRSP to maximize its value
By using your tax refund to contribute to your registered retirement savings plan (RRSP), you’ll reduce your taxable income and enjoy potential tax savings.
It’s also a great way to take advantage of income-based tax credits and benefit programs, like the Canada Child Benefit (CCB), childcare expenses deduction and the GST/HST credit.
5. Boost your retirement savings to reach your goals sooner
By re-investing your tax refund in your RRSP, you’ll boost your retirement savings even more. Now’s the time to take advantage of unused contribution room. Keep in mind that the sooner in the year you contribute, the more time your investments will have to grow tax-free and the sooner you can achieve your retirement savings goals.
6. Pay extra to pay down your mortgage faster
You can pay off your mortgage sooner by paying up to an extra 15% of the amount you initially borrowed each year.
Want to maximize this strategy? Contribute to your RRSP and use your tax refund to pay down your mortgage.
If you’re close to retirement, it’s a great way to start reducing your financial obligations.
7. Put money in your TFSA to help pay for a vacation, renovations or another big purchase
A tax-free savings account (TFSA) gives you lots of flexibility when it comes to using your savings for all those special things you want to do.
Here’s what it offers you:
- Non-taxable investment income
- Tax-free withdrawals, no matter the reason. Any money you take out will free up new contribution room for the following year, which means you can re-contribute the equivalent of the amount you withdrew.
- You can access your funds at any time, if they’re in investments that can be easily converted to cash.
What you don’t want to do is use your TFSA like a regular bank account by making frequent withdrawals.
Not sure which option is right for you? Talk to your advisor; they’ll go over your situation with you and recommend the best strategy.
*Financial Planner and Mutual Funds Representative for Desjardins Financial Services Firm incorporated.