/ Finance 101

6 smart ways to use your tax refund

Your tax refund may seem like an extra paycheque from the government. While it may be tempting to use the money to buy a new gadget or update your wardrobe, the money you get back from your tax refund can also help you reach your financial goals. Consider putting it towards paying down debt, creating an emergency fund or saving for the future.

If you’re asking yourself “How should I spend my tax refund?” we have you covered. Here are six smart ways to use your tax refund in 2017:

1. Spend it where you need it

Have you had to deal with additional or emergency expenses lately? Is your hydro bill through the roof? Your tax refund can give you the extra money you need to help make ends meet.

2. Pay off high-interest debt

If you’re looking to pay off high-interest debt, use your tax refund to reach your goal faster. Put the money you receive towards balances on credit cards, loans and lines of credit. Paying off debt now could help you save money in the long run by reducing your overall interest costs. Plus, it’s always a great feeling to know you’ve paid off a credit card balance!

3. Add to your “emergency fund”

Do you have an “emergency fund” set up? An emergency fund is a cushion of money set aside to pay for things like unexpected auto repairs, medical expenses and other emergency situations. If you haven’t built an emergency fund yet, consider starting one using your tax refund.

Insider tip: Start your emergency fund in a Tax-Free Savings Account – read on for details.

Think of your 2016 taxes as a fresh start to a financial new year."

4. Build or contribute to your TFSA

Another smart way to use your tax refund is to put the money into a Tax-free Savings Account (TFSA). Anyone over the age of 18 can contribute up to $5,500 per year to a TFSA. Because you can withdraw money tax-free any time from a TFSA, this type of account is ideal for holding an emergency fund – that way, you can access your money when you need it.

Check it out: Read the Government of Canada’s information about TFSA contributions.

5. Contribute to your RRSP

Use your tax refund to get an early boost on 2017 Registered Retirement Savings Plan (RRSP) contributions. If you choose this option, not only are you saving for your future, but you’ll also save on your taxes next year, as the money you put in an RRSP is tax deductible. Keep in mind that contributions made before the end of February 2018 will count for your 2017 tax return.

Check it out: Read the Government of Canada’s information about RRSP contributions.

6. Invest in your children’s education

Do you have kids? Consider putting your tax refund into a Registered Education Savings Plan (RESP), a smart and easy way to invest in your children’s future. If you haven’t set up an RESP yet, the Government of Canada has a list of resources about how RESPs work and the available grant and tax-incentive programs you can apply for.

Your next task: Think of your 2016 taxes as a fresh start to a financial new year. Now that you’ve made smart decisions with the money you received in your tax refund, focus on the future. Consider other changes you can make to your financial habits to balance your budget and improve your credit, such as limiting credit inquiries and consolidating debt.

This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.

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