Sometimes spending money wisely can be a challenge – especially tax refunds, which can seem like free money. If you’re lucky enough to get a tax refund this year, take a moment to consider how you could put that money to work for you instead of squandering it on a big screen TV, new wardrobe or beach holiday.
Here are some smart ways to spend your refund:
- Add to your emergency fund. Set aside enough cash to cover six months of expenses — just in case the unexpected happens
- Pay down credit cards and other high interest debt. You’ll save money on interest charges and increase your monthly cash flow
- Jump start next year’s RRSP. Contributing early allows you to take advantage of all those extra months of tax-free growth. At retirement time this can mean thousands more in your pocket.
- Invest in a Tax-Free Savings Account. Growth or earnings in a TFSA are 100% tax-free, and you’re allowed to contribute up to $5,000 per year
- Pay down your mortgage. Lump sum payments on your outstanding principal will save significant dollars in interest charges over the long term. It also means you’ll own your home mortgage-free that much sooner
- Save for a child’s education. Invest in a Registered Education Savings Plan on behalf of a child or grandchild and you’ll qualify for a government-sponsored Canada Education Savings Grant of between 20-24% of the contribution (to a maximum of $600).
- Take care of outstanding RRSP loans. Some loans have three or four month grace periods during which time you’re not required to make any payments towards the interest or principal. Remember that the interest owed still continues to accumulate until the loan is completely paid off.
Remember, how you spend your money today will have a significant impact on your future. For advice on how to get your tax refund working for you, talk to a Credential Asset Management Inc. Mutual Funds Investment Specialist
The information contained in this newsletter is provided as a general source of information and should not be considered personal tax advice, investment advice or solicitation to buy or sell any mutual funds. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.