Are there smart ways to use your tax refund?

24 AUGUST 2023

Saving money is similar to maintaining a healthy lifestyle. You know, regular exercise and eating healthy. We all know we should do it more, but it can be difficult to avoid those quick gratifying choices.Happy man and woman, with their hands in the air

A tax refund is an excellent chance to enhance your financial situation in the future. If you're getting money from the tax man, there are a few things you can do to make sure it keeps working for you.

Here are our suggestions in no particular order:

1. Create an emergency fund

Many people do not have sufficient savings account to fall back on in the event of a financial emergency. A lack of savings puts you at risk of losing your job, having a medical emergency, or needing big repairs, and may require you to take out high-interest short-term loans or carry credit card balances for an extended period of time. If you use your refund to build or supplement an emergency fund, you'll be able to breathe easier if one of those catastrophes occurs.

2. Start a business

When starting a business, you don't need to quit your current job. To turn a passion for thrifting or baking into a profitable business, a tax refund can be used to fund inventory purchases, website development, or any other aspect of turning a passion into a business. This is especially true if your passion is finding hidden gems at yard sales and reselling them online.

3. Pay off your credit card debt

If you have a credit card debt, you may want to use your tax refund to pay it down. Once your list of bills is no longer cluttered with minimum payments, you'll be able to save more money each month.

4. Think about your retirement

In order to save for retirement, there is no better option than to use money that isn't part of your salary. With the money you save, you can set aside some of it for the time when you no longer have employment. As time goes on, you'll likely be thankful that you saved for retirement rather than squandering your money on something you'll soon forget about.

5. Give your kids a stepping block

If you have children or grandchildren, you'll be doing them a big favour by investing your refund in an account towards their varsity fees. They will be able to afford a college education with the help of a fees account in an era where escalating tuition rates leave many with crippling student debt.

6. Start or upgrade your career

Pay for a short-course. Taking advantage of a tax refund can help you upgrade your current qualifications or pivot to a whole new different one.

7. Make extra payments towards your mortgage

An excellent approach to save money, in the long run, is to make extra mortgage payments. As a long-term loan has so much interest to pay, decreasing the principal can have an enormous impact over the course of its duration. It doesn't take much to make a major difference in your long-term debt to the bank, even a few extra payments.

8. Finally make those renovations to your home

Spending some of your refund on home improvements can help increase the overall value of your property, especially if you renovate the kitchen or the bathroom. In some instances, it can help you save on small recurring expenses like plumbing or electrician costs. Replace old appliances with energy-saving ones.

If after you consider these tips, you still have a bit of a luxury itch to scratch, definitely treat yourself, but don’t forget to not use the entire amount on something you will soon forget about.