How to make the most of your tax refund

The tax deadline is approaching. So, if you haven’t filed yet, get on it!

Most people in North America are actually set to receive a refund, so don’t be scared about filing. Though your refund might feel like an extra paycheque - Hello Vitamix - it’s actually not. It just means you’ve paid too much in taxes throughout the year and are getting a long-awaited refund. We recommend a strategic approach if you're getting a refund.

Save

Allocate 30% to your tax-advantaged retirement investments (RRSP and TFSA in Canada and 401(k), IRA and Roth IRA in United States). There are tax advantages to contributing to these tools making them some of the best tool for long-term retirement savings.

Debt Reduction

Apply 30% to bad debt such as credit cards, car loans or lines of credit. If you’re lucky not to have bad debt, you could pay down your mortgage instead. Making an extra monthly or bi-weekly payment each year can shave years off your mortgage and save you thousands of dollars in interest.

Spend

What have you been eye-balling all year? Patio furniture, running shoes, golf clubs or new gardening tools? Use 30% of your return and reward yourself! Though it may seem counterintuitive, wealthy people don’t shy away from rewarding themselves. They’re just smart not to go into debt to pay for the things they want, and they make sure their financial house is totally in order before they splurge. 

Give

Pick your favourite charity and give them 10% of your tax refund. Not only will this help your community and make you feel good, but you’ll receive an attractive tax credit which can be applied to next year’s tax return.

Overall, take a balanced approach to managing your tax refund and try to build-up tax credits for next year while reducing debt and rewarding yourself.