What's the smartest way to make use of my tax refund? l Refresh Financial

The Top 5 Ways To Make Use Of Your Tax Refund

 

It’s that time of year again, when we’re all scrambling to get our taxes done. It’s a whole lot of wishing we had a universal translator to read those tax forms to us and interpret that bureaucratic language. It’s usually worth it though, because many of us get some of our taxes returned to us in a lump sum - it’s kind of like we’ve been saving all year!

Most of the people I know see their tax refund as a great reason to go out and grab that new iPad they’ve been eyeing; or maybe a quick trip to some tropical all-inclusive. While spending your money on the things you want right now is always fun, consider the other option: you have the opportunity to kick start a new financial beginning. Your trip to Los Cabos will eventually come to an end, and bills will still need to be paid, debts will still hang over your head. It’s mere fleeting gratification vs. real change. Consider using your tax refund as a stepping stone to financial security instead. Here are five ways to do that:

1. Pay down debt

Depending on the size of your tax return, you have the opportunity to take a good chunk out of the debts you owe. Making a large payment on credit card or loan debt is going to be great for your credit score, and it’s going to save you money on interest. In the case of credit cards, your minimum payment will shrink, enabling you to make larger payments than just the minimum and continuing to bring your credit score up. In the case of loans, you’re going see it paid off that much faster.

2. Start or top up your emergency fund

We can’t stop bad stuff from happening but we can try to be prepared, at least financially, for it. Putting away a few months worth of expenses is going to make bad stuff a little less bad when it does happen. You’re going to get through it a lot easier with a chunk of cash to fall back on, than if you do it without an emergency fund. If you don’t have an emergency fund, this is probably the best way to use your tax refund.

3. Throw it in your RRSP

Your contributions to your RRSP can be deducted from the income you report on your next tax return, ensuring next year, your refund will be that much larger. Putting your tax refund into your RRSP every year is also going to help you make sure you’re maxing out your contributions and doing all you can to save for retirement.

4. Use it to secure a secured credit card or line of credit

If one of your financial goals is to improve a poor credit rating, use your tax return to secure a secured credit card or line of credit. Then, ensure you make your payments on time, and pay more than the minimum payment each time and you’ll watch your credit score grow. Having this extra chunk of cash lying around is the perfect excuse to get working on that credit score.

5. Put it in a high-interest savings account to start your savings

If you open up a high-interest savings account and pop your refund in there, it could be just the motivation you need to start saving money regularly.

What you choose to do with your tax refund is ultimately going to be up to you, but even a small refund can be just the spark you need to turn your finances around.

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Don't let poor credit stand in the way of your financial dreams! The sooner you start building credit, the sooner you will qualify for lower interest credit products that can get you the things you want in life, like a new car, or even a mortgage. Refresh Financial has a credit building program that can boost your credit score faster than you thought!

 

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