You’ve filed your taxes (or you’re planning to very soon) and you’re expecting an income tax refund. To some, this perceived windfall can be a sign to go on a spending binge.
The average income tax refund hovered around $1,800 – the cost of an all-inclusive vacation for one in the sunny south, a few really nice dinners out, or a very decent shopping spree.
If you’re expecting an income tax return for the 2019 tax year, that means you’ve overpaid your taxes, and you’re simply getting some of that back. Rather than treating your income tax refund as a windfall, here are some smart ways to put that dough to good use.
Pay down debt.
It’s unlikely that you’ll miss this chunk of money, since you’ve technically already paid your taxes and are just getting some of that back. Use it to pay off some debt and reduce the interest you’re paying on that loan. Less interest paid means more money in the bank for your living expenses.
READ MORE: How much will it cost to buy a house?
Stash it away.
Leaving that cash in a savings or chequing account makes it easy to access – and spend. Take advantage of tax savings in 2018 by depositing your 2017 refund into your Registered Retirement Savings Plan or a Tax-Free Savings Account.
READ MORE: How to buy a home you can afford
Update your home.
While your tax refund may not be enough to fund a full-blown renovation, the average refund is definitely enough to cover some upgrades in your home. This can boost your return if you’re planning to sell. And if you’re planning to stay in the home, you’ll enjoy the enhanced liveability – and perhaps some shiny new faucets!
READ MORE: Boost your home’s value with $1,000 or less
Boost your mortgage payment.
Depending on your mortgage terms and conditions, you may be able to make a lump-sum payment. You’ll pay less in interest and more in principal. While $1,800 may seem like a drop in the bucket, every dollar counts.
READ MORE: Understanding mortgages
Build your down payment.
If home ownership is part of your future plan, deposit your tax refund into a “down payment” fund. An RRSP is a great option. You’ll enjoy a tax break, and you can borrow up to $35,000 (tax-free!) for your down payment and other home purchase-related costs when you’re ready to buy.
READ MORE: What is a down payment?
Always consult your financial advisor to determine the best solution for your needs and goals.