Guest blogger Leanne Salyzyn is an insolvency counsellor, licensed restructuring professional, and licensed insolvency trustee. Post a comment or contact her on Twitter with your personal-finance questions.
With tax season here, many people are anxious to file their tax returns and get refunds. How wonderful it is when unexpected money arrive. Pondering how to use the refund? There is no right or wrong way to use the money but getting your priorities straight is key.
Pay off debt
It’s not a glamourous choice but it is the logical choice for many. For the average person who lives paycheque to paycheque, using the tax refund to pay off high interest debt makes sense. The sooner you pay off credit card debt, the less stressed you become. You save on interest charges and jump start savings in your own pocket.
Unexpected money, like that from a tax refund, can be used to build your savings. Reinvest in an RRSP for your retirement, RESP for your children’s educations, or a TFSA for an emergency fund. Most people have little or no savings to pay for unexpected expenses. Consider what goals you want to achieve and put the money to good use. It’s not often we get a sizeable amount of money at once so planning is key.
Make a down payment
A refund can be used towards the down payment on a home you have been planning to buy or for the car you have been wanting to purchase. It can also be used as a downpayment towards the first months rent for your new apartment. Saving money for these types of down payments can take months (maybe years). Now is your chance to get ahead of your dreams!
Buy something you actually need
Is your car in need of repairs and you have no money to fix it? Are you behind in your cell phone or utility bills? Do you need dental work but haven’t had the money? Take care of the essentials before you splurge on things less important.
Take a vacation
Experiences last longer than things. Spend that refund on a trip to see family out of town or grab a last minute deal down south. Set a budget for the vacation and stick to it. Make sure you don’t overspend and potentially go into debt. If the refund is not enough to pay for a trip this year, save it in your “vacation” bank account for next year. Throughout the year top it off with additional savings such as bonuses. Watch the Disney account grow!