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How to best use your tax refund

How to make your refund work for you

What to do with that tax refund? There are so many temptations! Do you spend that refund on a covid delayed vacation or maybe the latest and greatest TV? Tempting as these purchases may seem, you should take some time to think about your financial wellness and consider other options to best use your refund.

Take care of high interest debt

The first option to think about is paying down any high interest debt. Paying off credit card debt can help get you away from high monthly interest charges and in turn, increase your disposable income. CSCU is offering a 3.9% balance transfer to help people reduce their credit card balance. Reducing debt should be one of your top financial priorities.

Make your refund work for you

It’s likely, you’re receiving a tax refund because you invested in an RRSP this tax year. Good for you, you are on the right track to build your retirement savings. An RRSP not only lowers your taxable income, generates a potential tax refund, it also invests your money tax deferred. All smart ways to grow your wealth.

Positive steps for your tax refund

Re-investing your refund is a smart way to build your retirement savings. By re-investing you are doing three positive things:

1. Using another source to build your retirement savings

You are creating another potential tax refund, and if you re-invest the next refund, you are creating a positive cycle of ongoing RRSP contributions. Think about how your RRSPs will grow year after year by constantly re-investing your refund.

2. Catching up on unused RRSP contributions

Re-investing can help you catch up with your maximum allowable RRSP contributions. Remaining RRSP contributions from the previous year roll over to the following year which means if you didn’t quite manage to maximize your contributions, you can still use your tax refund to catch up. Catching up can also help you lower your taxable income, which in turn creates a greater potential refund.

3. Earn interest right away

When you re-invest your refund, you start earning interest on your RRSP contribution right away versus only earning interest when you make a tax time contribution. It’s about making your money work for you.

And back to those temptations, if you truly need to treat yourself with something special, consider using a portion of your refund to spoil yourself and re-investing the remaining funds to build your retirement savings. You’re taking care of yourself mentally and financially - a true win-win situation.

It’s your future – We’re here to help you make the most of it.

Your future self will be grateful you are making smart financial decisions. It’s never too soon to get started, or too late. Making wise financial decisions like re-investing your tax refund is a great way to achieve financial wellness.

Get started, call 604-654-2000