We just passed the deadline for getting your taxes filed for another year here in Canada. That means, if you did everything right, you’re either waiting for your refund or you’ve got it already.
According to the Canada Revenue Agency, 57.5% of the people that filed taxes last year got a refund – the average being between $1,750 and $1795, depending on whether you got your money by direct deposit or cheque.
If you’re part of the crowd getting some money back this year, what’s the most meaningful thing you could do with it?
Of course, the right answer depends on your overall financial situation. But here are a few ideas on how to best put your refund money to good use; I’ve also tacked on a few things you should avoid.
6 good things to do with your tax refund
- Exchange some of your cash for American money
The economic tides are changing. There’s concern about Canada-U.S. trade, Canada’s economic growth is tapering down, and rates may rise in the U.S.
Our dollar has been hovering around 77 cents lately and there’s good reason to think it may continue in that direction.
If you’re planning a U.S. vacation any time in the near future, making some exchanges now could save you a good amount of money later on.
- Get into the stock market on a bargain
Like our dollar, Canadian stocks are also down.
The way things are now, you could get into a diversified exchange-traded fund or mutual fund to cover the Canadian market for a very reasonable price. Or, you can delve into individual stocks that have gone on sale.
- Stock pile some money for a rainy day
You just never know when something might happen (god forbid!) and you need some extra cash. If you don’t already have an emergency fund of several hundred dollars or more, now is a great time for you to get started.
Your tax return comes with the advantage of giving you a solid jump start to saving. It’s much easier to continue adding to an account with some funds already in it than it is to start completely from scratch.
Having some money put away makes good sense financially; it’s good for your psychological well-being too. Knowing your whole empire isn’t going to crumble at the first sign of adversity can help you sleep a little easier at night.
- Get yourself covered, or covered better
You and everyone else hopes you’ll never have to file an insurance claim, but it doesn’t mean you shouldn’t be prepared.
In tough times, it’s easy to let your policy lapse or cut back to just the bare essentials. Use your tax return as an excuse to review your current coverage and top up any areas that might be leaving you and your family vulnerable.
- Invest in your child’s post-secondary education
Registered Education Savings Plans (RESPs) are investment vehicles available to parents in Canada. They are a tool for generating tax-deferred income and saving for your child’s post-secondary education.
Each calendar year, any amount in the RESP below $2,500 will earn a government grant of 20%. The amount you deposit plus the grant then earns interest until you end up using it when your kid goes to school.
The RESP is a great way to quickly earn a 20% return on your investment. And there’s no better time to add to it then when you get your tax refund.
- Invest in your retirement
Money you deposit into your Registered Retirement Savings Plan (RRSP) this calendar year counts towards the refund you get next year. Investing this year’s tax refund in your RRSPs can maximize your return in 2019.
It’s also a good opportunity to take advantage of employer sponsored matching programs, if you’re lucky enough to have them.
3 things you shouldn’t do with your tax return
- Blow it all as soon as you get it
We all want a bunch of stuff that we don’t really need; it’s hard to resist the temptation to blow all the money you just got on a few of these items.
Of course, a few indulgences here and there are okay, but don’t slip into the mindset that tax return money is free money gifted to you. This money is your hard-earned cash that’s been taken off your regular paycheck all year: It’s your income!
Treat it like you would normally treat a paycheck and factor it into your budget.
- Pretend your rich for a while
Around tax refund time, it’s easy to slip into a mindset of inflated income without even realizing it. This often happens when you deposit your return directly into your chequing account; the next thing you know, two months has gone by and you’ve blown through your entire return without realizing it.
To avoid this potential pitfall, get your return into a separate account as soon as possible. Even if you are incredibly disciplined and won’t touch your return while it’s in your chequing account, it’s still not a good idea to let it rest in there.
Most, if not all, chequing accounts come with fees and few offer interest rates on deposits. The ones that do don’t catch up with inflation. You can squeeze much more out of your refund by keeping it elsewhere.
- Get sucked into a renovation
I don’t know what it is about Canada, but we’re a country obsessed with real estate and home renos (must be all the HGTV).
Wherever the desire comes from, resist the urge to redo your bathroom or put new countertops in your kitchen. As great as it may look afterwards, the return on your investment for this scale of a reno isn’t very good.
If you’re keen on making changes in your home, focus on updating features that will save you money – replace some old, drafty windows or doors, add insulation under the roof, or pick up a newer, more energy efficient appliance.
Here’s the bottom line when it comes to what you should do with your tax return: it all depends on your current financial situation and what your budget is like. The most important thing is you sit back and make a wise decision; don’t just blow it like it’s free money.
Have a great week and remember to follow the blog for email alerts when new articles are posted and be sure to follow Healthy Wheys on Instagram, Facebook, and Twitter.