Tax refunds…big or small, we love them all. But like any financial windfall, the challenge is to balance having fun with being wise when deciding just what to do with it.
You can have it all if you look at the big picture, says Peter Andreana, a Certified Financial Planner® professional and partner with Ontario-based Continuum II Inc.
“It all starts with having a financial plan and understanding your own personal needs and goals, for both the short-and long-term,” says Peter. “Part of that means paying down any debt, spending and investing wisely, and making good choices for your financial future.”
Peter suggests these five possible uses for your tax refund that will pay off, now and in the future. Discuss them with your financial planner to see what’s best for your individual circumstances.
1. Pay off credit cards
A credit card balance is the worst kind of debt, due to typically high interest rates. Making minimum payments will only make purchases that much more expensive over the long run. Paying off credit card debt is a great first step for a tax refund.
2. Prepay the mortgage
If you own a home, consider making a prepayment against the mortgage. Prepayments can help bring down the interest paid over the duration of the mortgage. Check your mortgage contract to ensure that making extra payments won’t lead to penalties.
3. Load up the TFSA
A TFSA can be a great way to save for mortgage prepayments, home renovations, travel andother personal goals. Consider taking a portion of your tax refund and placing it in a TFSA to accumulate interest tax-free.
Putting a portion of your tax refund to work in your home will help increase its value and build equity—if you choose the right projects. Check with a real estate professional and contractor for advice on putting your money in the right places.
5. Plan a holiday
Life—like financial planning—is all about balance. You don’t have to forget about vacations when making smart choices for your tax refund. In planning and budgeting for your holiday, a portion of your tax refund could help get you there.
A Certified Financial Planner® professional professional can help you make the right choices for your tax return and for your financial well-being.
“Let your financial plan guide you, even with what might seem like a windfall,” says Peter. “Your plan is the foundation on which a solid future can be built.”
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For more on taking control of your financial future to achieve your goals, read Five ways early tax planning keeps money in your pocket, How to banish the RRSP rush and Take back control of your cash flow.