Income tax season has wrapped up, and tax returns are being issued left, right and centre. Seeing extra money in your bank account may make your eyes light up, and Canadians expecting a refund might already be pondering how they plan to put that “dough” to use once it hits their accounts. Spoiler alert: spending this money on materialistic things might fulfill your short-term wants, but once the money is gone, you might find yourself with a little buyer’s remorse and wish you could have these funds back to make a different financial choice.
Before rushing to spend this new cash flow on high-priced items such as a new fashion accessory or tech gadget, it’s essential to take the time to pause and think through this purchase to avoid making impulsive financial decisions. So, if you’ve received a tax refund and are looking for ideas on how to use these funds – Canada’s credit unions have you covered.
We’ve compiled a list of four ways to help you make the most out of your tax return.
Pay Down Consumer Debt
When is the last time you paid your credit card balance off in full? If you are currently carrying a pesky balance on your card that is accruing daily interest charges, now is the opportune time to take charge of your consumer debt. A lingering credit card balance could lower your credit score and affect your chances of approval for a mortgage, car financing, or even leasing a rental unit. So, if you want that monkey off your back, use the extra cash from your tax refund to help pay down your debt. By reducing your consumer debt, you’ll leave yourself more room to make monthly contributions to increase your personal savings.
Key Tip: Speak to your financial provider or credit card company to see if you can freeze your monthly interest for a few months. Doing this will give you more breathing room to make higher payments towards your debt without a large fraction of it going towards vast monthly interest.
Top Up Your Registered Retirement Savings Plan (RRSP)
For many young Canadians, the prospect of contributing to an RRSP (registered retirement savings plan), or any savings plan for that matter, can feel unthinkable. You may think that your monthly contributions to your RRSP need to be hefty – but think again. Even the smallest contribution can make a difference! So, if you lucked out and received a refund this tax season, why not put that money to good use by topping up your retirement savings? Contributions to your RRSP have an opportunity to grow in value tax-deferred (until they are withdrawn), allowing you to seamlessly build your retirement nest egg or even save for the purchase of your first home through the Home Buyers’ Plan, a program that allows first-time home buyers to withdraw funds from their RRSP.
By putting your tax refund in your RRSP each year, you increase your opportunities to max out your annual contribution limit, which will maximize your savings for later years. Plus, the sooner you start contributing to your RRSP, the more these contributions will start to compound, meaning you’ll have more funds available to use when you need them.
Open an Emergency Savings Fund
Life is uncertain. From a global pandemic and layoffs to the financial implications of inflation, we all know life can present us with unexpected situations. Being financially prepared and having extra savings tucked away can serve as a vital financial safety net to help you navigate turbulent times. That’s where an emergency fund comes into play.
Allocating some of your return towards building an emergency savings fund is a great starting point to help financially protect yourself in tough times. Whether you are unemployed, or inflation is putting a strain on your household budget, setting some money aside can come in handy and can serve as a financial cushion while you get back on your financial feet.
Open a Registered Education Savings Plan (RESP)
If you are a new parent, you know that child-related expenses can come with a hefty price tag. From the day your child takes their first steps to the day they turn 18, it can feel like the blink of an eye that they’re about to start their first year of post-secondary education – that’s where an RESP can help!
According to Statistics Canada, the average student’s tuition for the 2022-2023 school year, excluding the cost of textbooks and on-campus living costs, is close to $7,000. Now you may think you have all the time to save for your child’s education, but you should think again. If you don’t take the time to budget consciously, you may find yourself scrambling at the last minute to help your child achieve their educational dreams.
Need a helping hand to save for your child’s education? Opening an RESP (Registered Education Savings Plan) is a great way to develop healthy savings practices and regularly contribute towards your child’s education. Plus, by being able to track how much you’ve saved, you’ll be able to ensure you stay on course to meet your savings goals. Consider depositing a small portion or all of your tax return into an RESP to bring yourself one step closer to funding your child’s post-secondary education. Plus, adding this additional funding to your RESP each year will take a huge weight off your back in the long term, especially if you have multiple dependents.
Key Tip: The Canada Education Savings Grant tops up your monthly contributions by 20 cents for every dollar you put into an RESP. Speak with your local credit union to find out how to reap these benefits.
A Credit Union Can Lend you a Hand
If you raked in a refund this tax season, there are many ways to use these funds to brighten your financial situation both for today and tomorrow. This is where a trusted, local credit union comes into play. From starting an emergency fund to topping up your RRSP or paying down debt, credit unions can provide you with a personalized banking experience and recommend the best options to make your tax refund work for you. Not yet a credit union member? Find your nearest credit union here.