Do you consider your tax refund hard earned income, something that should be invested, or to be spent?
You work all year, the government takes their share from every paycheque and after that year is over you file your taxes and hope for the best. Good news! You won’t have to pay anything; you will be receiving a large refund for all your blood, sweat and tears at work. What do you do with it?
- Are you the type of person to spend it all at the bar, on clothing or another splurge?
- Do you invest all or part of it? Maybe start an emergency fund, add to your TFSA or RRSP?
- On the other hand, for us financially challenged folk, do you pay off your debt with all or part of it?
What did I do with my refund?
The shopaholic in me considered it the perfect opportunity to buy a few new work clothes and a Nike+ Sports watch (for the running I do). The saver, not to mention the debt box I am trapped in, requested I pay off my credit card. So, I did both. I have a few new clothes for work (one third of my refund) and I have paid off my high interest credit card (other two thirds of refund).
10 Ways to use your Refund
- Spend it on something you want or need – maybe your car needs to be repaired or you want new clothes for work.
- Start or add to an Emergency Fund – remember, it is vital to have at least six months living expenses saved in case you run into hard times. When you are single, it is crucial to have this. You have no one else to depend on but yourself.
- Pay off high interest debt – start with the highest debt you are carrying, such as a credit card or department store card.
- Invest in a TFSA – If you are like me and have not been putting money in a TFSA, you probably have accrued a lot of room to invest money tax-free. As of Jan 1st 2013, you can contribute up to $5500 a year to your TFSA. Since the Canadian government established TFSA’s in 2009, I have not been contributing. This means I have $25,000 worth of contribution room (prior to 2013 the limit was $5,000 per year). My accountant nearly had a heart attack when I told him I did not have one. I received a mighty lecture on the importance of using them instead of regular investments. So, now I have three! One to save money for Car maintenance, one for my Dream home and the last one for Emergency/Travel fund. They are all setup for auto withdrawal and are a part of my monthly budget. Pay yourself first!
- Give to your favorite charity
- Invest in yourself. Take an online course, learn a new language, or enroll in a spinning class.
- If you are single like me, buy a gift card for a coffee shop, get out there and meet new people!
- Save a portion of your refund for a vacation
- Pay down your mortgage (if you have one)
- Put it towards what you owe on your car – monthly car payments are a pain, why not get it paid for faster?