Situation: The income tax refund is a welcome sight for many taxpayers.
My View: Park it temporarily to reflect on its best use before allocating it.
Solution: Evaluate family needs and options that provide lasting benefits.
Income tax filing season is under way once again. Accordingly, I examine some smart ways to apply your tax refund. First, a little trivia:
For what year did Canadians last file a 1-page Federal income tax return?
It was the 1949 tax year.
I think of allocating the income tax refund loosely within these categories. For example, you can spend it, save it, invest it, reduce debt and help others.
Start by parking the refund into a saving account to resist impulse, say for 30 to 60 days. That provides you sufficient time to reflect and evaluate your needs and best options that apply.
Try your utmost to arrange lasting usefulness from this source of cash. Many of the allocations you will make are not reversible.
Everyone can reap benefits from these simple best practices. I summarize some sensible ideas in dealing with tax refunds:
Reduce debt
- Repaying credit card balances are top notch, risk-free allocations.
- Trimming a line of credit, mortgage or student loan is very desirable.
Invest it
- Contributing to the RRSP boosts the retirement nest egg.
- Adding to the TFSA generates tax-free investment income.
Help others
- Donating to a charity of your choice is a noble cause.
- Helping out someone less fortunate than you is generous.
- Making RESP deposits helps pay the rising costs of education.
- Funding the RDSP for a special needs family member is unselfish.
- Lending it at the prescribed rate to the lower tax bracket spouse.
- Assisting an adult child to purchase a vehicle or residence.
Save it
- Leaving it in your saving account is a worthy choice.
- Supplementing your family business capital is worthwhile.
- Adding to your investment plan is productive strategy.
- Improving your career or education fulfills goals and dreams.
- Rebuilding the family emergency account is beneficial.
- Setting funds aside for the next income tax instalment.
Spend it
- Replacing an aging vehicle and appliance helps.
- Paying an outstanding invoice is anxiety off the mind. Continue Reading…