Financial Literacy

It’s the most wonderful time of the year- for those lucky Canadians eagerly awaiting their income tax refund to arrive. If you are expecting something back from the Government of Canada it is time for some reflection, as you try to resist the urge to spend it without a return to yourself.

tax refund options

Consider the following six options to make the most of your tax refund.

1. Pay down your debt. Debt that you carry comes with interest so paying down the principle will save you money.  Consider different methods for paying down your debts, such as ”Rolling Down Your Debts” focusing on eliminating one debt at a time rather than trying to pay down your debts all at the same time. You may choose to start with the highest interest rate account to avoid paying the most interest to your creditors.

2. Make an extra mortgage payment. Take a look at your mortgage pre-payment conditions to determine your options for extra payments. Try to make an extra payment or apply the money towards your annual prepayment allowance. Depending on the size of your refund this could save you thousands of dollars in the long term.

3. Save, save, save! That means put as much as you can into a registered savings vehicle such as a registered retirement savings plan or a registered education savings plan. Not only will this help you and your children in the future but an RRSP will also give you an additional tax credit for next year and in an RESP the government will add a grant to it!

4. Save again! Start or grow your emergency savings account. This is one of the most important financial considerations for all Canadians. The rule of thumb is 3 to 6 months of living expenses so get started on building your cushion or top up what you have already.

5. Invest in your home. Home improvements, whether just maintenance projects like a new roof or a full update, will keep you safe and sound and the value of your home current.

6. Invest in yourself. Consider taking a course to update or refresh your skills. Buy those personal training sessions you’ve been thinking about, or even take the time to do something fun with family and/or friends.

The money you receive is yours to spend as you please but some decisions make more sense than others. Depending on the amount of your tax refund, you may choose a few of the options presented. If you need help in deciding what debts to pay or how to make these financial decisions then call a Credit Counselling Canada member agency for an appointment. A certified counsellor will be happy to assist you!

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