Where You Should Put Your Tax Refund Money

If you’re expecting a tax refund this spring, you’re probably already thinking of ways to spend the money. Before you book that Caribbean vacation, however, consider using the money wisely so that it will grow and pay for longer, more luxurious vacations in the future. Here are some ideas for where to put your tax refund this year.

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1. Into Your TFSA

If you don’t have one already, speak to your bank about opening a tax-free savings account, or TFSA. The Canada Revenue Agency explains that your contributions to a TFSA aren’t tax deductible and income earned in the account is tax-free even when you withdraw it, making this an incredibly easy way to save money.

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2. Into Your RRSP

According to the Canada Revenue Agency, a registered retirement savings plan, or RRSP, is a savings plan specifically with retirement in mind. You can use your contributions to your RRSP to pay less tax and as long as the funds remain in the plan, the income earned is tax-free.

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3. On Your Credit Card

As Investopedia explains, whenever you don’t pay your credit card balance in full, interest charges are added to the balance, so next month you’ll have to pay even more interest. By paying your tax refund money into that high-interest credit card account, you’re reducing your balance and the interest that can be charged, so you’ll be debt free sooner.

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4. Into an RESP

If you have children, you’ll need to start saving for their education sooner rather than later. With a registered education savings plan, you name the beneficiaries and pay contributions into the plan, which will then one day be used to help pay for the beneficiaries’ education.

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5. Into Property

Using your tax refund to make extra mortgage payments will help you pay off your home sooner. You can also use the money for the deposit on a new property and, as MoneySense explains, the home buyers’ plan, or HBP, allows you to dip into your RRSP to help buy that first home.

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6. Into Your Education

As MoneySense points out, using your tax refund to enroll in a training or professional development course can help boost your career and your future earnings. The lifelong learning plan, or LLP, makes it possible for you to supplement the money you’ll need for your studies by withdrawing it from your RRSP.

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7. Into Your Emergency Savings Account

According to Investopedia, you should have three to six month’s salary in an emergency savings account for those unexpected events like illness that can keep you from earning an income. With a high-interest savings account, you’ll earn more interest on your savings but you may need to give the bank prior notice if you want to make withdrawals.

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8. Into Your Health

When you’re healthy, it’s easier to earn an income and enjoy a high quality of life. MoneySense suggests that you invest in a home gym, a gym membership, a wellness tracker or even just buy healthier food to keep you in shape.

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9. Into a DIY Project or Hobby

Using your tax refund money to invest in a DIY project or hobby will not only give you a creative outlet but can have some financial benefits too. Some home renovations can increase the resale value of your property while you can start selling your art or crafts and maybe open the door to a new career.

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10. Into a Charity’s Coffers

Donating to a charity is a great way to pay it forward and help others. In addition, as MoneySense explains, Canada’s tax credit system means that charitable donations can slash the amount of tax you’ll need to pay in future.