While for some, paying taxes is something that is dreaded, for others, it means an annual windfall that can come in handy. If you are expecting a tax refund, why not think about the ways that you can turn that money into a wise investment?
Receiving a refund from paying taxes in Canada can be a financial opportunity for you to prepare for the future. If the last two years of living through a global pandemic have taught us anything, it’s that we all need to be more prepared for unexpected economic hardships. Layoffs and closures can happen at any time, not just during global recessions.
It might be tempting to spend your refund on something fun like a vehicle upgrade or a shopping spree. However, it is in your best interest to find a way to make that money work for you. Let’s take a closer look at a few frugal ways that you can invest your tax refund.
Many of us were caught off guard at the beginning of the pandemic. Millions of people were suddenly out of work and struggling to make ends meet. It is estimated that more than half of Canadians were living paycheck to paycheck prior to the 2020 pandemic. That means that it didn’t take long for many people to be in serious financial trouble. If you are getting a refund from your tax filing this year, you may want to set up a dedicated Emergency Fund. With some money set aside, you can be assured that you will be better prepared for the next unexpected financial disaster.
The cost of sending your kids to college is getting steeper each year. Your tax refund is a great resource to help you max out your children’s college fund. If you have children, it’s important to start putting money aside early for their education. Investing your refund in an RESP can help you to build towards your child’s future.
Pay Down High-Interest Debt
None of us likes the feeling of living with a debt cloud over our heads. When you get your tax refund check, a great way to invest it is to pay off some of your heaviest debt. Start maxing out your payments on your debts with the highest interest rates. Putting down money on the principal for these types of debts will reduce the amount of overall interest.
Boost Your RRSPs
If you are going to receive a healthy tax refund, now is the time to invest in your own future. More than 50% of Canadians claim that they are not comfortable with their retirement savings status and wish they were more prepared to leave the workforce. Investing your tax return in your retirement can help you to maximize your RRSP contributions and take advantage of key deductions for next year’s taxes.
One of the most rewarding ways to invest your tax return is by making a charitable donation. There are hundreds of charitable organizations where you can spend your tax return. You can also gift up to $15,000 to a friend or family member tax-free.
If you are waiting by the mailbox to receive your tax return, but aren’t sure about the best ways to spend it, try one of these frugal tips to help you invest in your future.