Still deciding what to do with your tax refund? You’ve got options!
Landing a bit of bonus cash can set off a battle of wills in most people. “Fun, Carefree You” wants to finally check out the purchase that’s been sitting in your online cart for months, and plan that trip to Greece. But “Responsible Grown-up You” knows this money should be put to good use. Surely there’s a way for you to do both?
Here are some ideas on how to spend your tax refund…
1 – Pay off your debt
This might be considered 0% fun but 100% stress relief. The average Canadian has more than $20,000 in consumer debt, not including their mortgage. If you have consumer debt, especially the high-interest kind, using some of your tax refund to lower your balance can help reduce the amount of interest you’ll pay in the long run..
2 – Stash it away for an emergency
Is a vacation considered an emergency after a long Canadian winter? Probably, but the reality is that almost four in ten Canadians say they never or rarely set money aside into an emergency account. With rising inflation driving up prices, having a few extra bucks available can cushion the financial impact of a job loss, a major illness or injury, or an unexpected car or home repair.
3 – Make it grow
If you’re saving regularly in your Common Wealth plan, you’re already taking great steps to building a more secure financial future. By making one-time contributions when you come into some extra cash, even small amounts, can make a big difference over time. When you contribute, your money is automatically invested with BlackRock®, the world’s largest asset manager – that means your money is getting industry-leading investment expertise, at a low fee.
Where should you save? RRSP, a TFSA, or both?
Depending on how your Common Wealth plan is set up, you may have an RRSP, a TFSA, or both – so which should you contribute to?
- If you expect to earn more than $50,000 a year in retirement, saving in an RRSP may make more sense. Because your contributions are tax-deductible, this can increase your chances of getting a tax refund next year.
- Saving in a TFSA may make more sense if you expect to earn less than $50,000 a year after retirement. This helps you maximize your government retirement income benefits and gives more flexibility if you need to access the money before you retire. Find out more about how RRSPs are different from TFSAs.
Making a one-time contribution is easy and takes just a few minutes. Watch how.
4 – Have your cake and eat it, too
It turns out that most Canadians are pretty practical. This year a survey found that:
- 12% of Canadians plan to put their refund towards a vacation and
- 11% plan to splurge on something special
Depending on how much of a refund you’re getting, you don’t have to choose just one option. You could choose one of two of the options above that will have the greatest impact on your finances and keep some to spend on fun. That way you can do something nice for yourself – both now and for the future.