With tax season here, many people are eager to file their tax returns for only one reason: the possibility of a tax refund. How wonderful it would be to see unexpected money arrive. Pondering how to use the refund? There is no right or wrong way to use the money but getting your priorities straight is key. Here are a few suggestions for you to consider.
Pay Off Debt
It’s not the most exciting or most glamorous choice but it is the logical choice for many. For the average person who lives pay cheque to pay cheque, using the tax refund to pay off high interest debt makes sense. The sooner you pay off credit card debt, the less stressed you become. You save on interest charges and jump start savings in your own pocket.
Invest It
Unexpected money, like that from a tax refund, can be used to build your savings. Reinvest the monies in an RRSP for your retirement, RESP for your children’s education or a TFSA for an emergency fund. Most people have little or no savings to pay for unexpected expenses. Consider what goals you want to achieve and put the money to good use. It’s not often we get a sizeable amount of money at once so planning is key.
Use as a Down Payment
A refund can be used towards the down payment on a home you have been planning to buy or for the car you have wanted to purchase. It can also be used as a down payment towards the first month’s rent for your new apartment. Saving money for these types of down payments can take months (maybe years).
Buy Something You Need, Not Want
Is your car in need of repairs and you have no money to fix it? Are you behind in your cell phone or utility bills? Do you need dental work but haven’t had the money? Take care of the essentials before you splurge on things less important.
Take a Vacation
Experiences last longer than things. If you are “comfortable” with your debt load, spend that refund on a trip to see family out of town or grab a last minute deal down South. Set a budget for the vacation and stick to it. Make sure you don’t overspend and potentially go into debt. If the refund is not enough to pay for a trip this year, save it in your “vacation” bank account for next year. Throughout the year top it off with any additional savings such as bonuses.
