Are you getting a tax refund? 5 ways to use the extra cash coming your way.
As another tax reporting deadline passes, the hope is that you have maximized all your income tax deductions and will be receiving the maximum allowable refund. Here are five sensible ways to put that money to use.
#1 Pay down your mortgage
As your mortgage is likely the biggest debt you have, paying down some of the principal will help save on interest charges, as well as whittling away at the remaining balance. Usually banks have a “penalty-free” amount that you can put towards your mortgage every year.
#2 Pay down other debt
If you have a large amount of debt outside of your mortgage, consider reducing some of the outstanding amount. Whether it’s a personal loan, RRSP loan, line of credit or credit card, start by paying down the debt with the highest interest rate, as that generally saves you the most in interest charges.
#3 Begin your emergency fund
Some people use a line of credit in case of a surprise expense, such as a job loss or unexpected repairs. But you can also choose to set aside money in an emergency fund to cover unplanned expenses. It’s recommended to have approximately six months’ worth of expenses set aside in safe, easily accessible investments such as a bank account or money market fund.
#4 Contribute to your registered plans
If you have contribution room for registered plans like an RRSP, RESP or TFSA, you can use your refund to max out your contributions. Not only does it help build your nest egg or add to education savings, but in the case of RRSPs, it will give you another deduction for the current tax year.
#5 Splurge a little … but just a little!
If you have taken all the right steps towards your financial plan and have taken advantage of all your options, treat yourself. Take the family on a trip or buy something you have had your eye on. It is important to reward yourself for making solid financial choices!
Contact your financial advisor today to talk more about the best ways to use your tax refund.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.