You may have heard the quote “…in this world nothing can be said to be certain, except death and taxes”. And unfortunately, taxes are a real and often painful part of life. Thankfully, some years we receive a tax refund. While this can feel like “free” money, burning a hole in our pockets and ready to be spent, there are some smart things we can do with these newfound funds.
With that in mind, here are 8 brilliant things you can do with your tax refund.
1. Pay off debt.
Whether you have student loans, credit card debt, or a line of credit to name a few, using your refund towards debt repayment is always a good idea. Pay down the debt with the highest interest rate first, to make your money go further.
Financing a car? Even though car payments don’t always “feel” like debt, see if you can make a lump sum payment to own your vehicle sooner.
2. Contribute to your RRSP or 401(k).
Not only does this investment better your long-term financial position, but RRSP contributions yield tax deductions. Two birds, one stone!
And if you’re interested in learning more about making payments to longer-term savings vehicles, I highly recommend reading The Wealthy Barber by David Chilton. It’s my favourite personal finance book and taught me a lot about managing money. My blog post (and video!) about how to budget offers some suggestions about how to make these contributions part of your ongoing financial picture.
3. Make an extra mortgage payment.
Depending on your mortgage, you can apply a lump sum payment to pay off your mortgage faster, saving you money in interest payment. While it may not feel like it’s making a huge dent, every little bit helps and speeds up your process to fully owning your home.
4. Put it towards savings or investments.
Whether it be a tax-free savings account, non-registered account, or other long-term investment, a contribution of even a few hundred dollars can go a long way. You can also contribute to a savings account, particularly if you have one set up for an emergency fund, or a child’s RESP. This can really help accelerate your savings.
Looking to save more on an ongoing basis? My post about how to save money automatically offers some suggestions on how to do so on autopilot.
Travel is one of the best gifts you can give yourself, but vacations rarely come cheap. Take a trip or set your refund aside in a savings account until you’re ready to us it. This will also give you something to look forward to!
Consider making a charitable donation to a cause you believe in, or buy a gift for a friend or family member. Looking for inspiration for a gift? Check out these gift guides:
7. Start a business.
If you’ve been contemplating starting a business or venture, some extra cash can be well-served in getting you up and running. You can read about my full story here.
Invest in yourself, whether it be formal education, training, books, or a class to further a hobby.
Let me know in the comments below: how do you plan on using your refund this year?