Friday, March 4, 2022
Get practical ideas for using a tax refund wisely. Explore top strategies to pay down debt, grow savings, invest, and boost financial stability.
Tax season isn’t fun, until you get your return and realize you’re getting a sizable refund, that is. Suddenly, tax filing feels worth the hassle.
In 2025 the average Canadian got a tax refund of $2,000. While there's no way to predict exactly what you'll receive this year, if last year's numbers offer any indication, you might be looking at a significant chunk of change landing in your account.
What should you do with your tax refund? Spend it like it's free money? Invest in the future? Pay off debt? Save it?
There’s a lot of options. Here are some of the ways you can use your tax refund wisely.
What's the smartest thing to do with your tax refund? If you're carrying any outstanding high-interest debts, now’s the time to pay them down.
Credit card debt is a great place to start. Credit cards carry an interest rate around 20% and actively drain your finances month after month.
When you pay a significant portion of credit card debt, you don't just reduce what you owe. You also cut the interest charges that pile up every billing cycle, freeing up more of your monthly income going forward.
If you're managing your debt comfortably with your regular income, your tax refund can help you build wealth for the future. This is your chance to invest in your future self.
Consider your options based on your financial goals and stage of life.
A Tax-Free Savings Account (TFSA) gives you flexibility; you can save for a major purchase like new appliances, build toward a down payment on a home, or simply grow your money without paying tax on the gains.
A Registered Retirement Savings Plan (RRSP), on the other hand, helps you build retirement security while reducing your taxable income.
Making an RRSP contribution could even boost the amount you get for your tax refund next year.
You don’t have to put all your money away for the future to make a difference.
Putting 70% of your refund in a long-term savings account can vastly help you plan for the future, while allowing you to spend the remaining 30% on something that brings you joy now.
Your tax return gives you a chance to grow your money instead of just spending it. Putting that refund into investments can help build your wealth over time.
You can open an investment account through your bank or an online brokerage. Many Canadians start with simple options like index funds, which let you invest in a broad mix of companies without needing to be an expert.
If you prefer something safer, consider a Guaranteed Investment Certificate (GIC). Your money earns a guaranteed interest rate over a set period, and you won't lose your principal. While the returns are lower than stocks, GICs offer peace of mind.
The important thing is to start somewhere. Even a small tax refund can become something larger when you give it time to grow. You don't need thousands of dollars or special knowledge to begin investing.
Open an account, choose a straightforward option that matches your comfort level, and let your money work for you. The sooner you start, the more time your investment has to grow.
Putting your money into a long-term savings account isn’t the only way you can put your refund away for the future. You can also work on building your emergency fund.
An emergency fund is meant to help you should the unexpected happen.
Life doesn't care about your budget. Your washing machine will break down at the worst possible moment; your car will need unexpected work right when money feels tight.
When these situations hit, you'll thank yourself for tucking money away.
Start building your emergency fund with a clear target: save enough to cover three months of living expenses. This cushion protects you from derailing your financial progress every time something goes wrong. Your tax refund gives you a strong foundation to work from.
If you want to build your emergency fund like a pro, put your refund into a high-interest savings account where it earns interest while staying accessible.
Then budget to add even small amounts each month: $50, $100, or whatever you can manage. That initial investment from your refund will then grow steadily.
Before you know it, you'll have enough saved to handle the broken washer or handle a costly car repair and still sleep soundly at night knowing you're protected.
Got student loans that need paying off? Your tax refund could help make a big difference if you put a large portion towards your loan repayment.
Even if you don’t have loans yourself, you may want to think about planning for your children’s education through a Registered Education Savings Plan (RESP).
Here's where your refund really multiplies: the government matches your contributions through the Canada Education Savings Grant, adding up to $500 per year (or $7,200 over the lifetime of the plan).
Investing in your own or your child’s education puts your tax refund to good use and can save you money in the long run.
Your home represents one of your largest assets, and your tax refund offers two ways to build equity in it.
The first option is paying down your mortgage principal. While you should prioritize high-interest debts like credit cards first, extra mortgage payments still deliver solid returns.
Every dollar you put toward principal reduces the total interest you'll pay over the life of your loan. On a typical mortgage, that could mean saving thousands in interest charges while building your ownership stake faster.
The second approach focuses on strategic renovations or overdue repairs.
Renovations aren't just expenses; they're investments. One of the best ways to do this is with a home equity line of credit (HELOC).
A HELOC is a loan that lets you borrow money based on how much of your home you actually own. It works like a credit card; you can take out what you need, when you need it, and pay it back over time.
HELOCs typically offer much lower interest rates than credit cards or personal loans. Use your refund to minimize how much you need to borrow, reducing your interest costs while still completing value-adding home improvements.
This is what we all want to do, isn’t it?
It’s okay to spend part of your tax refund on yourself.
The key is to spend with intention, not impulse.
Start by deciding what would genuinely improve your life right now. Maybe it’s replacing a worn-out appliance, upgrading your work-from-home setup, or booking a small experience that helps you recharge.
Set a limit for how much of your refund you’ll use.
Many people find a 70/30 split works well, putting most of the refund toward savings or debt and reserving a portion for something that brings joy or convenience.
This approach lets you enjoy the moment without feeling guilty or setting yourself back.
This is your tax return, so whether that means using your refund to pay off debt, allowing it to grow through investments, or securing your future, make sure what you put the money toward is right for your needs.
Friday, March 4, 2022
Get practical ideas for using a tax refund wisely. Explore top strategies to pay down debt, grow savings, invest, and boost financial stability.
