Making the most of your tax refund is not always the easiest thing to do. It might feel like you’re getting free money, but it’s just a refund of taxes that you paid the government and tax credits from things like charitable donations and RRSP contributions.
Regardless, a tax refund can help you significantly in the future if you use it wisely today. If you’re getting a tax refund this year, take a moment to consider how you can make the most of it by putting it to work for you:
- Add to your emergency fund. Set aside enough cash to cover six months of expenses just in case the unexpected happens.
- Pay down credit cards and other high interest debt. You will save money on interest charges and increase your monthly cash flow.
- Jump start next year’s RRSP. Contributing early allows you to take advantage of all those extra months of tax-free growth. At retirement time this can mean thousands more in your pocket.
- Invest in a tax-free savings account. Growth or earnings in a TFSA are 100% tax free, and you are allowed to contribute up to $5,500 for 2018.
- Pay down your mortgage. Lump sum payments on your outstanding principal will save significant dollars in interest charges over the long term. It also means you will own your home mortgage-free that much sooner.
- Save for a child’s education. Invest in a registered education savings plan (RESP) on behalf of a child or grandchild and you will qualify for a government-sponsored Canada Education Savings Grant of between 20 and 24% of your contribution (to a maximum of $600).
- Take care of outstanding RRSP loans. Some loans have three- or four-month grace periods, during which time you don’t have to make any payments toward the interest or principal. Remember that the interest owed continues to add up until the loan is completely paid off.
