For many years, I didn’t earn a lot of money. I often struggled to stay within my budget and find extra ways to save, such as packing all of my lunches, riding my bike to work and playing Boggle on dates at home instead of going out. Sometimes, I even worried if I could afford frozen vegetables and avocados on sale.
One bright spot during each one of those lean years was Spring. In addition to the longer days and warmer temperatures, I knew my financial situation meant I was much more likely to receive a tax return from the Canada Revenue Agency, giving me a chance to splurge on my family or save a little extra for the future.
If you’re also expecting a tax return, you might be tempted to buy something or go on a trip using the funds. But this money is also a great opportunity to improve your finances in the short- and long-term. Here are some suggestions on how to reduce interest payments and increase wealth.
Deal with Credit Card Debt
With interest rates as high as 25 per cent, tackling your balance can be a great way of using your tax return.
Pay a Student Loan
Whether they are provincial loans like OSAP, Canada Student Loans or funding from private banks, paying down a student loan with a tax return will also help you reduce interest payments and help you become debt-free faster.
Tackle Other Loans
High interest rates and fees on payday loans, car loans, debt consolidation loans, or title loans can quickly add up. Reducing them or eliminating them with your tax return can help significantly reduce short and long-term expenses.
If you have multiple loans, some experts recommend paying off the smallest balance first, which can give you momentum. Other experts recommend paying off the card with the highest interest rate to save more money in the long run. The first method, known as “debt snowball” is more popular while the latter is lower in cost. The most important thing is planning for how you will continue to make payments and work towards paying off all of your loans.
Contribute to a RRSP
Using your tax return to contribute to an Registered Retirement Savings Plan means you’re starting on next year’s contributions and saving more for your retirement.
Add to a Rainy-Day Fund through a TFSA
A Tax-Free Savings Account doesn’t have the same tax deduction benefits as an RRSP, but with tax-fee withdrawals it can still help you save for emergencies or shorter-term savings goals. Experts recommend between three to nine months’ worth of expenses in an emergency fund.
Invest in Your Home
There are many options for investing in your home to help save money . These include an additional mortgage payment, which would help reduce the amount of interest; a home renovation project such as a new roof to increase its resale value; or smart upgrades like a Nest thermostat or new appliances to help lower utility bills.
Deal with Existing Needs
Overdue dental work, car repairs and crucial items like a new winter coat can grow in cost the longer you don’t deal with them. A tax return can allow you to address these essentials.
Consult a Financial Advisor
Trying to figuring out all of your options and how they fit into your personal financial goals can be confusing on your own. Talking to a professional about your current life stage can give you trusted information and help you determine how to make the most of your return.
Are you expecting a tax return from 2018? How will you invest your tax return this year? Share in the comments below!