There is at least one nice aspect to submitting your tax return: the possibility of obtaining a tax refund. According to data from the Canada Revenue Agency, just over half of the approximately 25 million tax returns received in 2017 were eligible for an average refund of $ 1,670.
If you receive a refund, you must decide what to do with it. It can be tempting to spend it on the spot. Who wouldn’t want a trip, a new car or a brand new kitchen? However, it’s important to consider all of your options, such as paying off debt or saving for the future.
Whether you’re early in your career or about to start a family, or saving for a home, here are some ways to use your refund wisely.
- Pay off your debts … especially those with high interest rates
According to a survey conducted by Global News in late 2017, the demographic struggling with the most debt is Gen X (the 35-54 age group). Its members say they have debts of $ 10,000 on average, and that’s not counting their mortgage. This includes credit card debt, which can carry interest rates approaching 20%. At this rate, monthly payments can put a huge dent in a budget.
The Tax Refund Loans Online offers advice on how to tax refund loans bad credit. She recommends paying off debts with the highest interest rates first, like payday loans and credit card balances. By doing this, you will pay less interest and have more money to reduce your overall debt.
Once you determine which debt to tackle first, you can define a strategy for paying it off. Many Canadians have mortgage debt. FCAC suggests a variety of strategies to help you pay off your mortgage faster, such as lump sum or increasing your regular payments.
Is it better to invest your money or use it to pay off your debts? The debate on this issue is not new. In fact, the choice depends on the prevailing interest rates, the amount of your debt and your financial situation. Online calculators can help you determine if reducing your debt is the right choice for you.
- Saving for retirement
The statistics confirm it: Canadians are not saving enough for their retirement. Government programs like the Canada Pension Plan, the Quebec Pension Plan, and Old Age Security will provide a basic income for many Canadians when they retire, but you must consider your own needs and wants to determine how much. Additional amount you will need to accumulate.
The good news, however, is that the sooner you start saving, the longer the value of your investments can grow, thanks to smart choices?
The most popular retirement savings option is the Registered Retirement Savings Plan (RRSP). It allows you to make contributions each year without having to pay tax on them until you withdraw money from your (at a lower tax rate, hopefully). In fact, your contributions can increase your tax refund.
Another great choice for long-term savings is the Tax-Free Savings Account (TFSA), since any capital gain that accumulates in it is not taxable.
Fortunately, there are plenty of options for saving for retirement. Canada Life offers a wide range of investment and savings solutions, including mutual funds and comprehensive retirement programs.
- Save for other long-term goals
Beyond the long-term goal of retirement, there are plenty of other reasons to save. FCAC recommends that Canadians set up an emergency fund to deal with unforeseen events, such as the loss of a job or a medical emergency. This can be done slowly, with small weekly contributions put into a separate savings account. You can also use part of your tax refund to set up an emergency fund, which you can grow over time.
The same can be done to achieve other savings goals, such as a wedding or a down payment for a home. You can set aside a portion of your tax refund and then add small, periodic contributions to achieve your goal.
- Saving for a child’s education
If you are pregnant or are the parent of a newborn baby, you have probably already thought about the costs of their education. The average tuition fee for a year of undergraduate university studies in Canada was $ 6,571 in 2017, according to Statistics Canada. In addition, overall tuition fees are expected to continue to rise. Fortunately, there are government programs that can help you save for your children, the most popular being the Registered Education Savings Plan.
- Take out life insurance
If you have young children or are about to have them, you should consider purchasing life insurance if you haven’t already. According to a recent survey conducted by investment firm Edward Jones, less than a third of Canadians have insurance protection against life contingencies, such as death or critical illness.
However, such protection is important. You probably want your children to have financial security if the unthinkable should happen to you or someone responsible for your children. The two most common types of life insurance are term life insurance – a more economical option that covers the insured for a defined period of time – and participating whole life insurance – which offers protection along with opportunity to accumulate cash value in the policy on a tax-efficient basis.
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