Before you start picking out your new 85-inch TV screen, you might want to consider a few other options when it comes to deciding what to do with your tax refund. As tempting as it might be to splurge on something now, here are a few other ideas to consider. Trust us, you will thank yourself later.

 

“A dollar saved is two dollars earned”

 

Pay off Debt

So perhaps, you already bought that 85-inch TV and it’s sitting on your credit card. With many credit cards charging upwards of 20% annual interest rates, now’s the time to pay it off. Having and maintaining a good credit score is critical as you start establishing your financial footprint. Plus, where else do you gain a 20 percent return on your cash, in interest saved??

 

Invest in your TFSA (Tax Free Savings Account)

Things have a way of coming up unexpectedly, and you’ll want to make sure that you’re financially prepared. We always suggest having at least twelve months living expenses set aside for all those ‘what-if’ moments. A TFSA is a great way to save for uncertainties.

 

Alternatively, as opposed to saving for emergencies, you might have a few upcoming plans and/or projects to save towards– a wedding, a down-payment for a new home, a new business venture, a new car - this savings plan let’s you work towards your dream wish list.

 

RSP Contribution

One of the smartest ways to spend your tax refund is to invest it into your registered retirement savings plan. Not only will the compound interest help build your nest egg over time, you will also have the benefit of working towards reducing your taxable income in the following year.

 

                                                

 

Charitable Donations

Perhaps you’ve maxed out your RRSP, you're debt-free and you have a few dollars invested wisely in your TFSA – amazing! You’re well on your way to financial success. You may now want to consider helping others not as fortunate. The last two years have been a big challenge to many people and many small businesses. Now may be a great time to consider making a donation or supporting a meaningful cause in your community.

 

1 Assumes a 6% annual rate of return. With 30 years to grow, $2,294 could turn into $13,176. The assumed rate of return is hypothetical and does not guarantee any future returns nor does it represent the returns of any particular investment. Amounts shown do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary. This is for illustrative purposes only.