3 Smart Ways to Use Your Tax Refund This YearApr 25, 2018
Tax season is upon us once again and you’re probably not alone if you’re dreaming up ways to spend your tax refund.
According to the folks at CRA, last year’s refund averaged $1,765, which is pretty significant. Although most families view their refund as “found money,” there are a few things you should think about before booking that spa retreat or splurging on a new Spring wardrobe.
Don’t ignore those economic warnings
It sometimes seems like all we hear is a steady stream of bad news and dire warnings. However, it’s worth paying attention to news that can affect your long-term financial health.
High home prices and low interest rates have given many families the green light to borrow against their home’s equity. The average HELOC is $70,000 according to the Financial Consumer Agency of Canada, making them the most popular form of non-mortgage debt. The downside? Once home prices level off or slow down, you could end up owing more than your home is worth.
Here’s what you can do about it
- Ask yourself what might happen when the housing market begins to slow down. We’ve already seen housing downturns in parts of Canada. Prepare for that reality in your market.
- New mortgage rules aim to prevent buyers from taking on more than they can handle, so be proactive. Stress-test your finances and reduce your current debt load now so you don’t end up over your head in debt.
- Talk to a debt professional and discuss your options or use this handy calculator to compare.
Take stock of your finances
Here’s the thing: Receiving money that’s not accounted for feels like a windfall. But, before you cash that fat cheque, take a look at your finances from a top-down view. Are you ignoring areas that need attention? Are you on top of all your bills and debts? Look over your budget and make changes where necessary. Remember those financial promises your made to yourself at the beginning of the year? Keeping them front and center means you’re more likely to meet those goals.
3 ways to make your tax refund work for you
Let’s face it, raising kids of any age can be expensive, making family budgets especially tight. Higher interest rates can mean higher variable mortgage payments. Childcare costs are a major monthly expense. And many parents are still paying back their own student loans.
All these variables make it easier to fall behind, harder to keep on top of bills, and tempting to turn to debt to fill in the gaps. This is where your tax refund can help.
Here are a few ways you can improve your finances by investing in you and your family’s financial health:
- Take this opportunity to reduce your debt. Do you have a high-interest credit card balance that you’ve been wanting to crush? Depending on how much you owe, a $1,500 cash injection could help you make a serious dent in your principal amount or reduce your interest payments per month. You could also use your tax refund to pay off late or missed bills, or simply get ahead by paying some bills in advance.
- Add to your emergency fund. Do you have money set aside for car repairs or a furnace breakdown? That’s why you need an emergency fund. Drop your tax return into a high-interest savings account earmarked specifically for a rainy day, and remember to add it each month. Every little bit helps.
Emergency savings will keep you afloat when a financial crisis hits, giving you time to find your footing without turning to debt. How much should you put aside for emergencies? This emergency fund calculator can help you figure it out.
- Bank it! If you haven’t starting saving for that summer renovation project or winter vacation, now is the time. Our 2017 Home Reno poll found that a good number of Canadians were planning to make financial sacrifices — like slowing down debt repayment or not saving for retirement — in order to fund a home renovation. If you’re planning a reno, stash away your tax refund for your upcoming home improvement and skip the debt.
Will you use your tax refund to crush some financial goals? Share your story with us via Twitter using the hashtags #PersonalFinance #DebtSolutions