While filing income tax doesn’t usually make it on peoples ‘top 10’ of their most exciting yearly endeavors, receiving a tax refund is always exciting! I think we can all agree that it’s a much better experience than owing money!
If you’re one of the lucky people that got a refund on your income tax, you now have an important decision to make: what you’re doing to do with the money you received.
Is it better to save, invest, or splurge with the tax refund you receive?
While there’s no ‘one size fits all’ answer, we can help point you in the direction of some great options that might align with either your personal or financial goals (or both!)
Pay Off Debts and Bills With Your Refunded Taxes
We know clicking on the Amazon tab and filling your cart is going to be an incredibly tempting option at this point… but hear us out. If you currently have bills that need paying or a balance owing on your credit card, consider using your tax refund to help pay off what you have outstanding.
From a financial standpoint, it can be incredibly beneficial to pay a larger lumpsum amount on debt rather than making multiple smaller payments that accrue more interest.
If you’re currently caught up on your payments, you may want to consider using your return to pre-pay an upcoming bill – such as the ones attached to your student loan, car loan, or mortgage. It’s one less stress you’ll have to think about in the upcoming months – and who couldn’t use a little less of that, right?
Create an Emergency Fund… Or Add To It
If the last couple of years have taught us anything it’s that we have to prepare for the unexpected.
We’re talking about that flat tire on the way to work, the burst pipe in the basement, and the vet bill that Fido racked up when he accidently got into the Easter candy… When it comes to setting up an emergency find, we suggest trying to set aside a minimum of three months of living expenses. While that may not be doable all in one go, your tax return can provide a good jumping off point. Or, if you already have an emergency fund, it can add some additional financial cushion to what you’ve already got.
Life happens and it happens quickly. An emergency fund can help you tackle those unexpected expenses if, and when, they come up.
Invest Your Tax Refunds in Yourself – and Your Family
It’s easy to get caught up in the hustle and bustle of everyday life and put what is good for your future on the backburner. With your tax return, we’d encourage you take charge of your future by making smart financial investments for both yourself and your family.
Do you currently have life insurance? Health insurance? How about a retirement fund? Would you like to purchase a house or a car in the future? Or start your own business? Do you have a savings plan set up for your children’s education?
These are all things that you might have thought about before but never pulled the trigger on. With your tax refund in hand, now might be the best time to start thinking about where your priorities are and investing in them. No matter what your goals are, the sooner you can begin putting money towards them the closer you are to achieving them. Trust us when we say that nobody has ever regretted setting money aside for the future.
Invest in Your Home When You Get Tax Money Back
With extra money in hand, it may be time to make those household upgrades or repairs that you’ve been thinking about.
When considering renovations, always think about what will bring the biggest long-term return (both emotional and financial) on your ventures. Is it upgrading your patio or fixing your garage door? Is turning one of the spare rooms into an office, or finishing your basement? Is it fixing a damaged window frame, purchasing a new couch, or slapping on a fresh coat of paint in your kitchen?
Your home is your place of rest, your castle, and that’s an investment worth pursuing – especially if you’re planning to stay there for awhile.
Use Your Refund to Splurge on What You Love
Not everything has to be about paying bills and making investments. It’s more than acceptable to spend a portion of your tax refund on the ‘fun’ things that you normally wouldn’t be able to afford. The key is doing it responsibly. Before you start spending, set yourself a specific limit. Once you hit that limit, the spending stops – no ifs, ands, or buts! That way you’re not tempted to spend more than you have and get yourself into trouble.
With your budget set, go for it!
Sign up for a cooking class, a whiskey tasting, or a trip to the spa. Go on that trip to Mexico that’s been on hiatus for the last few years. Buy that new suit or those cute runners. Maybe Fido could use a few new chew toys, or baby could use a couple of new outfits. Maybe you’d like to take that online business class or hire a personal trainer?
Take the opportunity to do what brings you joy. Contributing to your personal growth and happiness is always a sound investment.
Questions About Your Tax Return? IAPC Has You Covered!
Deciding how to invest your tax refund and what avenues best fit the needs of you and your family can be tricky ground to navigate. Let us help you get where you want to be!
Book a free consultation with one of our trusted Chestermere Chartered Professional Accountants today. We’ll be happy to go over your options with you and answer any questions that you may have about your taxes or accounting needs!
