Five Tax Refund Spending Tips that Save You MoneyFeb 27, 2015
The idea of a tax refund is often thought of as ‘free’ money from the government, but its wise to remember that this is money you have already earned; as such you should spend it wisely and continue your good spending habits. If you are struggling with your debts this presents an opportunity to get back on track and begin paying off your debts. How do you overcome the urge to go on a shopping spree with that tax refund? Here’s a few ideas for you to consider:
1. Get Caught Up On Past Due Bills
Not the most exciting way to spend your tax refund but if you have overdue bills this is an excellent opportunity to get caught up and get back to square one with paying off your debt. This will help you to start re-establishing your credit score and rating. Late payments and debts sent to collection negatively affect your credit score and rating so it’s always important to be mindful of this. It can compromise your ability to qualify for future credit for that oh-so important mortgage approval or a necessary car loan.
2. Pay Off (Or Down) High-Interest Credit Cards
There is nothing worse than making your minimum payment on your credit card only to see a week later the interest has been applied and you are back over your limit. This is the interest spin-cycle and it is very hard to get out of but it can be done; especially if you wisely use your tax refund.
The simple idea behind this is by making a large lump sum payment with your tax refund the majority of it goes towards paying down the principal amount owing. After doing this continue to make the same monthly payment as you were before if you can handle it financially. Now a larger portion of that payment will go towards the principal amount rather than just paying off interest. Do you see where we are going with this? If you can stick to this you’ll start to see a drastic improvement on how fast your credit card balance is decreasing. You could have that credit card paid off before you know it!
3. Start An Emergency Savings Bank Account
When we say emergency, we are not necessarily talking about a natural disaster type situation but this account could come in handy then too! We are talking about an emergency fund for life’s unexpected events such as job loss or an injury that prevents you from working. It’s a general principle that you should be able to survive without any incoming income for at least six months; that’s also the general timeframe it takes to find new employment after a job loss. It can seem like a daunting challenge to save that much money when you are struggling with debt and regular expenses but it should be made a priority. A good-sized tax refund can give you a nice head start with your savings.
4. Make A Smart Purchase
There is nothing wrong with wanting to buy something with your tax refund, but frivolous spending can leave you still feeling empty-handed after that money is gone. Take some time and make a smart purchase with your tax refund, one that also shouldn’t force you to take out more credit to get it. A few examples might be replacing the windows in your house (this improves property value and can help increase efficiency saving you money on utilities) or purchasing a computer that will help you learn new skills or do some freelance work.
5. Give Back To Others
If you are struggling with debt, it’s important to make that a priority but if you have the opportunity it can be a wise investment to donate to charities. You will receive a charitable tax receipt which can give you deductions on next year’s tax return, helping to increase your next refund. Plus it helps out others, so pick a charity that is supporting something that is near and dear to you. Also be sure to do your research about the organization before donating any money. They should be a registered organization and be able to provide this information to you if requested.
There you have it, five simple spending tips for your income tax refund that are sure to help get you on the right path and give you a sense of achievement. No matter how big or small your return is spend it wisely and remember to file your taxes early, here are the Canadian Tax Deadlines.
Let us know how you plan to spend your tax refund on Twitter at #RefundYourDebt.