Last year, you thought ahead and contributed more towards your taxes than required. Now, you get to reap the rewards of your tax refund! It’s exciting to get some extra cash in your pocket, especially when you see the positive result of your contributions and the profit you have created. While the cash may be tempting to spend, you know you want to be smart about how you spend it. And, since you feel good about the final amount of your refund, you want to feel equally good about where that money goes. This is a great opportunity to reward yourself by taking care of your finances, buying smart, and maximizing the benefit of your refund. Here are some important ways to think about paying yourself first, and ideas on how to get the most out of your purchases.
Pay Yourself First
While the potential of extra cash is enticing, using your tax refund to take care of existing debts and loans first will provide you with a bigger pay off, and more money in your pocket later. When your cheque arrives, think back to some financial advice that’s been passed along to you, or read about the best financial advice we’ve received, and consider where your finances could benefit from a little extra cash.
1. Pay off high interest debt first
First and foremost, now is the time to pay off as much high interest debt as you can. This includes first paying off your credit cards, and then high interest loans or lines of credit such as student loans. This will save you from paying more interest down the road, and will free up money each month in your budget.
2. Pay into your investments
Take the opportunity to pay into your investments, such as your RRSP, RESP, or TFSA, and start building your tax refund for next year. Not only will you be putting your money into smart savings, you will be continuing your good habit of taking care of your future self.
3. Supplement an emergency or rainy day fund
Life is unexpected and sometimes things come up that we haven’t planned on paying for. Put some cash into an emergency fund that you can dip into when you have to fix a leaking roof or get your car repaired. Or, save the money for a rainy day so you don’t have to withdraw money from other accounts when you need to make a purchase.
Get the most out of your purchases
If you will be putting your tax refund towards a larger purchase, make the most of your money by following these tips:
1. Spend on something that will help you save
Make purchases that will help you save money down the road. For example, replace your old air conditioner for one that is high efficiency to save on energy, or buy a new bike that will help you save money on gas throughout the summer months.
2. Put your money into higher quality products
If you were already planning on making a big purchase, take the extra money from your tax refund to buy something that is higher quality. Buying a good quality patio set means you will have it longer, and you won’t have to spend more money to replace it in a couple years. Put your money where it will last, and don’t be afraid to pay a little more for key items.
3. Put a small amount of your refund into a ‘want’
If you still have some money left from your tax refund, use it to purchase something small that you may not normally purchase. For example, splurge on a dinner to congratulate yourself for contributing enough to get a tax refund in the first place!
Whatever your tax refund goes towards, we hope it gives you some peace of mind – and a little fun – going into the spring and summer months!
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