As tax season comes to a close, many Canadians will be receiving a tax return from the government. While it can be tempting to splurge on a vacation or a new gadget, there are more responsible ways to use this extra income. This guide will outline the best ways to use your tax return to improve your financial situation.
- Pay down debt If you have any outstanding debt, such as credit card balances or student loans, using your tax return to pay it down can save you money in the long run. By reducing the interest you pay on your debts, you will have more money available for savings or other financial goals.
- Build an emergency fund. An emergency fund is important for unexpected expenses, such as car repairs or medical bills. Using your tax return to start or add to an emergency fund can give you peace of mind and protect you from financial stress in the future.
- Invest in retirement. If you have not already, using your tax return to contribute to a Registered Retirement Savings Plan (RRSP) can have long-term benefits. You will receive a tax deduction for your contribution, and your money will grow tax-free until you withdraw it in retirement.
- Invest in education. If you or your children are planning to further your education, using your tax return to invest in a Registered Education Savings Plan (RESP) can help cover the costs. With the government’s Canada Education Savings Grant, you can receive up to $500 in free money for each child’s RESP.
- Improve your home. If you are a homeowner, using your tax return to improve your home can increase value and save you money on energy bills. Consider upgrading to energy-efficient appliances or adding insulation to your home.
While using your tax return for immediate gratification can be tempting, improving your financial situation can have long-term benefits. By paying down debt, building an emergency fund, investing in retirement or education, or improving your home, you can put your tax return to good use and set yourself up for financial success.
