What to do with your Tax Refund
We all know the quote by Benjamin Franklin who said, “… nothing is certain except death and taxes.” That can really be felt this time of year. People are scrambling to get their taxes done, so that if they owe, the government won’t charge them a pile of interest. But what do you do if you get a return? Most people will go out and spend the money as fast as they can cash the cheque! While this can feel like “free” money, burning a hole in our pockets and begging to be spent, there are some smart things we can do with it instead of buying a new TV or going out for a night on the town.
Here are four easy and simple ideas of what to do with your return this year that will pay dividends down the road instead of just leaving you broke.
Pay off your debt
Whether you have student loans, credit card debt, a line of credit or loan from the bank, or maybe a payday loan that has been looming over your head just to name a few, using your refund to pay off debt is always a good idea. Pay the debt with the highest interest rate first and make your money go further in the long run. Saving interest on debts now might not be the most exciting thing to spend your money on, but you’ll be glad when those regular, minimum monthly payments are less. Seeing the total owed going down is also a nice sight when that bill comes in the following month.
Contribute to you RRSP
Not only does contributing to your retirement better your long term financial position, but RRSP contributions can yield a tax deduction for the following year!
People think that, because they live a Canada, there will be a federal funded pension for them when they turn 65. Even at the maximum amount, the average pension taken at 65 will only pay out approximately $1200 a month. That works out to less than a minimum wage paying job. So many retired people have to supplement their pension with a part time job these days that not investing in your retirement is a dangerous thing to do. Could you survive on $1200 a month with your current lifestyle?
Make an extra Mortgage payment
Retiring at 65 sounds great, but what if you carried the debt load you have today? One of the biggest hurdles to retiring at 65 is making sure your housing costs are as low as possible. Depending on your mortgage, you may be able to apply a lump sum payment to pay it off faster, which will also save you money in interest payments as well. While it may not feel like you’re making much of a difference, every little bit helps and speeds up the time you have left before you’ll own your home outright.
Put it towards savings
These days so few people have a savings account for emergencies that they are woefully unprepared for the big emergencies that life throws our way. Leading experts advised that you should have at least three months of savings in the account at all times. Not the reality for most people I know. Take your return and throw it in a savings account for those unforeseen emergencies that pop up from time to time. Even a couple of hundred dollars can go a long way to making ends meet when emergencies pop up. You can also contribute to a tax free savings account, GIC, or a child’s RESP. Just put that money somewhere where you’re not going to be tempted to spend it foolishly on a whim some Friday afternoon.
Having a savings account is a goal everyone should work toward. The extra bit of money waiting there for the unexpected expenses that life throws our way can make a big difference. Do you have any other ideas on how to save? Leave a comment and tell us how!