Should I spend or invest my tax refund?
Another tax season has come and gone and many of us are feeling relieved to have completed the annual chore of filing income taxes. It’s even more of a relief for those who will be getting a refund on their taxes this year. While it is tempting to immediately spend this welcomed lump sum, choosing to invest that money can help you meet your financial goals for the future.
"Getting your tax refund can sometimes feel like a windfall of money and you’d be hard-pressed to not think about spending it right away, but it’s important to pause and take some time to think about what’s most important to you.
Think about your (financial) goals; what could help reduce stress or make life simpler? Is it paying down debt, or building up an emergency fund? Perhaps you’ve been thinking about saving for a vacation or purchasing a home.
Whatever is important to you, there’s value in enlisting the expertise of a financial advisor to make a plan around it. We’ll work with you to identify and prioritize your goals, and create a plan to power possibilities." says Michael Hensel, Financial Advisor, ATB Wealth Advice Centre.
Putting that money into a Registered Retirement Savings Plan or a Tax-Free Savings Account​ can help you reach your long-term or short-term goals. Whether you want to bump up your retirement savings or save for a down payment on a house, new vehicle or a wedding, socking that extra money away can help you reach those goals.
Should I use my tax return to pay off debt?
There are other things to consider when it comes to spending or investing your tax refund this year. If you have high interest debt, like a line of credit or a credit card debt, you might consider using your tax refund to pay that off. It’s likely that the interest on those debts is higher than any interest you will earn in an investment or savings account.
Should I let the CRA hold my refund?
The Canada Revenue Agency (CRA) also offers to hold your refund and apply it to your tax account for the next tax year. If you want to save that money in case you owe on your taxes next year, it’s a better idea to put it in a high interest savings account. That way your money has the opportunity to earn interest instead of losing value to inflation by allowing the CRA to hold it with no interest.
If you’re relatively new to investing, and have questions, book an appointment with us.
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