7 ways to spend your tax return
7 ways to spend your tax return
In case you haven’t heard all the radio ads about how scary your income tax is SUPPOSED to be(it isn’t) in order to scare you into paying money to have someone file your taxes, you may not have realized that it’s tax season. An exciting season for a lot of people because it’s the one time of year they get “paid” from the government. Unfortunately, your tax return isn’t getting paid from the government but only getting your money back that you’ve loaned them interest free.
If you’re like the majority of the population you’re probably getting some money back in the next few weeks and I’m going to share with you some ways how to spend your tax return. Some of these will be great for future you, others are going to be instant gratification for present you. It will be all your choice; I can only pass along the ideas.
So let’s jump right into the fun stuff shall we? Here’s 7 ways on how to spend your income tax(Green for go! being a better choice than red for STAAHP! And think about first…):
- RRSP/TFSA – Tax sheltered savings! Probably my first choice for my tax returns. Putting it right back into your RRSP is a double whammy for you. This will almost guarantee that you’ll be looking for ways to spend your tax return next year by reducing your taxable income in this current year.
Putting that money into a TFSA is just as good of an idea as your RRSP as this will allow it to grow tax free until you decide to withdraw, which will be late in retirement…right?
- Margin Account – If you’re completely out of contribution room on your tax sheltered savings accounts then this isn’t a bad bet. You’ll be taxed on your dividends and earnings upon sale of the equities. The bonus to a margin account is that you can borrow against the money you’re depositing. The interest rate to borrowing this money will probably be around 4% but it’s also tax deductible for next year.
- Pay down Debt – If you have credit card debt; THIS IS THE PRIORITY. Credit cards have notoriously high interest rates which can cost you dearly in a matter of months. Prioritize paying down your debt by paying off the highest interest rates first.
- Emergency Fund – Do you have an emergency fund? 3+ months of living expenses is never a bad thing to have on hand. I try to keep 6+ months of living expenses on hand just in case of an emergency. I’m currently working in a field very closely tied to oil prices, which haven’t been in the best shape so I need to be prepared for the possibility of losing my job and you should be too. Companies downsize (or “right size” they might try to tell you) everyday, you never want to get caught leveraged too much without a back up plan.
- Upgrade yourself – Always wanted to be certified in something? Want to learn a new skill? If these are marketable they’re DEFINITELY worth pursuing to diversify your income. Even if they’re not highly marketable or you don’t think you can make money at them if it makes you happy it’s also worth pursuing. It NEVER hurts to grow in knowledge and skills.
- Travel – My biggest spending weakness! I love to travel, if I manage to win one of those lottery wins, I’d be in a different country every week! I won’t blame you for spending your tax return on this one! But the money saved from not going on those experiences could be worth a lot more experiences in retirement if you picked one of the above ways to spend your tax return.
- Buy depreciating/consumable merchandise – Treat yourself! Maybe you had a big year of saving tons of money and have your tax sheltered accounts maxed already and a healthy margin account with no debt! Then it sounds like you might be doing awesome and deserve to splurge? OR you didn’t do any of those things and just want to spend your refund on some designer thingamajig…then you’re probably on this article by mistake and want to read more about Cirque du Soleil or travelling? Either way enjoy!