Tax Refund Article

You’ve done it. You scrimped and saved, used every trick in the book, and now, you have in your hand a cheque FROM the CRA, your tax refund! Now, before you go running to the nearest retailer or travel agent, take a few moments to read through the tips below to allocate this unexpected mini-windfall. How you spend this cash can greatly affect your finances, going forward, so it’s important to realize it’s a key decision.

Any high interest debt should be paid down first and foremost. Your credit card with that 18% interest rate is an example.

Second, adding to or starting up an emergency fund that is equal to about three months’ worth of expenses. For example, if your monthly expenditures are about $3000 per month, it’s wise to have approximately $9000 of cash available to you at any time. If you don’t have this, then a good use of your tax refund would be to start up an emergency fund.

Once you’ve taken care of high interest debt and savings, if you need something such as a car repair, expensive dental work, or a home improvement, this would be the time to start looking into that, when you have cash to pay for it.

After all of these options are exhausted, if you still have cash available from the refund, even I can justify a splurge, such as a nice dinner out, or a vacation, depending on the size of your refund. This should be spent logically. A $2000 refund is no excuse for a $5000 trip, after all.

Everyone’s financial situation is unique and a good look at your overall picture is certainly due at this time. Consider sitting down with a financial professional before making any decisions. Here’s to a good financial future!