What to do with at Tax Refund

Stop treating it like found money - Everyone is happy to receive a tax refund, but it is actually your money, to begin with, so allocate wisely.

1) Pay off debt
If you have debt - credit card debt, student, or personal loans – using your tax refund to pay off high-interest debt is a smart move. Make sure to put it towards your debt with the highest interest rate.

2) Lump sum to mortgage
Think of it as the government helping you pay off your mortgage by letting you use pre-tax dollars as a reward for saving for your retirement. If you have a mortgage that allows you to make additional payments without penalty (and most mortgages will allow you to make an annual lump sum payment of 5 - 25% of the mortgage value), this might be the perfect opportunity to use that to your advantage. The more you pay now, the less you pay in interest later.

3) Fund your retirement
Whether you are 21 or 51, you should be thinking about saving for retirement and making sure you contribute on a regular basis. If you are young, getting a head start will mean that the money you set aside now will have more time to accumulate and grow through compound interest.
If you put the money in your RRSP, you may get a tax deduction for your contribution, which could result in a tax refund next year as well … that you can also put towards your retirement fund. It creates a great cycle of savings!
Make sure to check your RRSP contribution limit.

4) Post-secondary fund
One benefit of putting money into a Registered Educational Savings Plan (RESP) is that the government will help you by matching part of your contribution. The government deposits a Canada Educations Savings Grant of 20% on the first $2,500 (or less) of your contributions per child each year to your plan. That is up to $500 per child each year! If you missed out on contributing in other years, you can make extra contributions, up to prescribed limits, this year to take advantage of the grant.

5) Emergency fund
Expenses can come up unexpectedly- you might be facing reduced hours at work or your car might need new brakes next month. An emergency fund helps you navigate life's financial ups and downs more easily. If something unexpected happens, this can help to reduce your stress in situations that are already challenging. We recommend that you have enough in your emergency fund for between three to six months of expenses. You could also contribute to a tax-free saving account; this would allow you to potentially earn a slightly higher interest rate while you wait to use the money. Make sure you check your yearly TFSA contribution limits.

Find the right balance
You can choose to do any of the things above with your tax refund, or you might choose a combination depending on how much money you are getting back and what your financial priorities are.
Whatever you choose, make sure to also give yourself a small treat with the money – whether it's a take-out dinner from your favourite place or a new outfit or something else you enjoy. After all, you’re allowed to have fun too!

-Bonnie

This blog has been prepared by Jodi Dark or a member of her team . Jodi is a Financial Advisor for HollisWealth®, a trade name of Investia Financial Services Inc., and does not necessarily reflect the opinion of HollisWealth or Investia Financial Services Inc. The information contained in this blog comes from sources we believe reliable, but we cannot guarantee their accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication/blog and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities. The information contained herein may not apply to all types of investors. The Financial Advisor can open accounts only in the provinces in which they are registered.