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Key Takeaways

  • Paying off debt frees up money for other things.  
  • Building an emergency fund can prepare you for a rainy day.  
  • Investing in your future gives you a head start on paying bigger expenses later.  
  • Spending on meaningful things is a worthwhile investment.  
  • Planning for smaller future refunds sets expectations for the future.

Receiving a tax refund can make you feel like you just hit the jackpot, but it’s best to be thoughtful about how you spend it. By working with a Certified Financial Planner® professional or Qualified Associate Financial Planner™ professional, you can make the most of your windfall. 

Maximizing the Benefits

So, you've organized your papers, dug up all your receipts, and filed your taxes early. Congratulations! Now, you’re probably looking at a big refund cheque and asking yourself, what should I buy? Should I start a clown school? How much is a private island?

Cash that feels like a bonus is always a blessing. But the question is, what should you do with it? Fortunately, working with a CFP® professional or QAFP® professional can help you maximize the benefits associated with your money. 

To help you get started, here are five tips for making the most of your tax refund.

Pay off debt

You knew this one was coming. If you have any outstanding debt, paying it off in one lump sum is an excellent way to get your finances back on track. 

When paying off debts, make sure you prioritize those that are high interest (like the charges on your credit cards) first. Then, you can tackle other loans. This approach will allow you to save money on interest, freeing it up for other spending purposes.

Build an emergency fund

An emergency fund is a savings account that’s set aside for unexpected costs, such as out-of-pocket medical expenses or car repairs. Having an emergency fund can provide peace of mind and prevent you from going into more debt when faced with challenging financial circumstances. Ideally, you should aim to have three to six months’ worth of living expenses saved. 

Your fund should be sitting in a separate high interest savings account. Consider parking it at a different bank, where it won’t be attached to your debit card. You don’t want to dip into it for “emergencies” like happy hour or a new Star Wars travel mug.

Invest in your future

Investing your refund can be an excellent way to grow your money over time. Let’s assume you have an RRSP or TFSA and have not maximized either. You’ll want to immediately run to your phone or computer, deposit the cheque, and invest it. 

Your refund can also be used to save for a specific near-term goal. Think a down payment on a house or a child's education. Setting money aside for a specific purpose makes it easier to leave it alone, because you are building towards something.

Spend it (Gasp!)

This one is probably a little unexpected. Spend the money on something meaningful. Try not to blow it on wasteful purchases. Think about what you need, or what you could buy that would make a lasting positive change in your life. This could include: 

  • Home improvements 
  • Enrolling in a course 
  • A once-in-a-lifetime trip with your family
  • A gift for a loved one

Anything that has ongoing benefits, can create memories, or helps you grow your capabilities may make that spending worthwhile. 

Plan for it to be smaller next year

There’s a lottery-winning feeling that comes with getting a refund. But you should never forget that it’s your money. 

If you are consistently receiving a refund, talk to your payroll or human resources department. You may be able to get your deductions reduced. That way, you’ll get to keep more of your money immediately. Just make sure you set that money aside so you have the same lump sum amount each spring. 

With a bit of planning and consideration, your refund can help pave the way for a brighter financial future. The first step is sitting down with a financial planner. Together, you can make plans to take concrete action that will benefit you.

To find a QAFP professional or CFP professional who can help you make the most of your refund, use our Find Your Planner tool. 

Kevin Cork photo. He is wearing a light grey jacket with darker blue shirt. Smiling, but looking down to his left.

Kevin Cork, CFP®, is President of The Absolute Group in Calgary, Alberta

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