3 smart ways to spend your tax refund

When you get unexpected income like a tax refund, it’s a great time to boost your financial health.

A tax refund can feel like falling into a pile of free money, but it’s no stroke of luck. Truthfully, when you get money back on your income tax, it’s just your own hard-earned cash being returned to you by the Canada Revenue Agency.

Anytime you receive a lump sum on top of your regular pay cheque, it’s a perfect chance to get ahead financially. We think these are three of the smartest ways to spend unexpected income like a tax refund.

We get it. Dealing with lots of different personal debts can feel overwhelming. But building a clear plan and navigating your finances with confidence might be easier than you think. There are a few debt repayment methods you can try. Many find that the avalanche method (tackling your fastest growing debts first) works best for them. Start by ranking your debts according to their interest rates, from highest to lowest. Then, pay off debts with the highest interest rates first.

Tip: There are lots of reasons to prioritize paying down debt. For one, it’s an instant stress reliever. You’ll feel so much better without those financial burdens hanging over your head!

You never know what the future has in store. But you can be better prepared for unexpected expenses by building an emergency fund.

An emergency fund is an amount of money kept somewhere accessible, such as a savings account or Tax-Free Savings Account (TFSA), that you can pull from to cover anything from a little fender-bender to a period of unemployment. And while the ultimate goal is to have enough saved to cover three to six months’ worth of expenses, WAY more than you’ll likely get with your income tax return, this time of year is a great time to top it up or put some money towards it.

Tax-refund season isn’t all about saving money – it can be a time to check some items off your to-do list too. The key is to spend in ways that’ll pay off in the long run.

For example, maybe this is the right time to upgrade energy-sucking appliances to more efficient models. Or sign up for classes that will take your career to the next level – or in an entirely new direction.

Opening a Registered Education Savings Plan (RESP) is one way to get started if you’re not able to commit to classes right away. It’s also a great option if you want to put some money away for your child’s education. And be sure to look into the Canada Education Savings Grant (CESG), which can help your money go further by matching a portion of your contributions.

Another idea is to upgrade your living space. If you’re a homeowner, renovations like installing higher insulation triple-glazed windows or adding hot-water-saving aerators to your faucets can lower your energy bills and bump up your home’s value. Don’t forget to check the Canada Greener Homes Initiative for grants and programs that can make these cost-saving changes even more affordable.

And, of course, the savviest tax-season strategy is to contribute some of your refund to your Registered Retirement Savings Plan (RRSP). Not only are you saving for your retirement, but you’ll get a break on your taxes next year too!

P.S. Don’t forget to treat yourself

And last but not least, you deserve something just for you! Afterall, you should always give yourself permission to enjoy a portion of your income, and your tax refund is no different.

The key is to keep it small. How small depends on your circumstances, but once you’ve considered your debts, future expenses and most strategic ways to invest, you’ll be in a better place to gauge what you can reasonably afford while still making sure you’re making moves towards having even more money in the bank next year.

^* If Quick Check pre-approves a card, you can be sure we’ll approve your application, except in limited circumstances. Some of the reasons we may not approve your application, among others, include:

a. There’s been a change in your credit file information, personal information or financial status from the time you receive your Quick Check results to the time you apply for one of our credit cards.

b. You’re not at least the age of majority in the province or territory you live in.

c. Your application is flagged for fraud prevention.

d. You have an existing Capital One account.

e. You’ve applied for a Capital One account in the last 30 days or had an account with us that was not in good standing in the last year. In good standing means not past due, over limit, fraudulent, restricted, or part of a consumer credit counselling program or bankruptcy.

In some cases, we may not be able to open an account for you even though your application was approved. This can happen if we’re unable to verify your identity, or you don’t provide the required security funds if you’re approved for a Secured Mastercard®.