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It’s income tax season and for the vast majority of Canadians, that means a chance to do a little extra spending. Whether it’s buying a new TV, paying for a vacation down south to escape our terrible weather or just blowing it on a bunch of dinners out, most people see an income tax return as an opportunity to spend.
But there’s a much better way to use your income tax return, and that’s to achieve your financial goals.
Listen, I understand, I’ve been there. I’ve used my income tax return to finance a trip to Vegas (for my 19th birthday) and adopt a dog. When money isn’t flowing freely, and you finally get your hands on a fistful of cash, your first instinct is to spend it.
But you’ll set yourself up for a much better year financially if you use that money in other ways. Here are five ways you can use your income tax return instead of blowing it at the mall.
Pay Down Debt
Paying down debt is probably the single best thing you can do with your income tax return. First, it lowers your overall debt load and brings you closer to your debt free date. Second, making a lump sum payment is a great way to boost your enthusiasm for debt repayment. Think about it, making a huge payment this early in the year will make a big difference in your debt repayment goal for the year, and it’ll feel like real, concrete progress on your debt repayment journey. I’ve used this strategy extensively, and you can read about it here and here.
Build an Emergency Fund
Whether you’re just starting to pay down debt or you’ve been debt free for a while, you need an emergency fund. If you’re just starting to get your financial it together, a small emergency fund of $2,000 is fine. If you’ve already paid off your debt and are ready to start building wealth, you need three to six months of living expenses. That can amount to a significant chunk of change. For me, that’s $10,000. Using your income tax return as a foundation for an emergency fund will help you check this key financial item off your list sooner. That’s what I did with my income tax return in 2014.
Start Saving for a Goal
What do you want out of life? Do you want to travel? Get married? Become a homeowner? All of these things require money, and your life will be a lot simpler if you choose to pay for them with cash. Right now my big goal is to save $40,000 for a house down payment and you’d better believe that’s where my income tax return is going this year. Plus, saying “I paid for that car/trip/wedding with cash” is just completely badass.
Boost Your RRSP
Only 31% of Canadians plan to contribute to their RRSP this year – be one of them! Instead of blowing your income tax return on electronics that will be outdated in a year, put that money in your RRSP for retirement. This is especially true if you haven’t gained the discipline to make monthly contributions to your retirement plan. Not only will this money be safely locked away where you can’t spend it, you’ll also boost your income tax return for the following year – and the cycle will continue.
Invest in Yourself
Want to learn to code? Sharpen your public speaking skills? Go back to school for a certificate program or diploma? Do it! Using your income tax return to invest in yourself and your earning abilities is probably the best ROI you could possibly get with this money, and will always be the best way to increase your income over the long term.
And now on to the giveaway! I’ve partnered with TurboTax Canada to give away three free TurboTax Standard Editions, which are perfect for individuals and families. I’ve been using TurboTax since I started filing online back in 2007, and I wouldn’t use any other service!
Recently, TurboTax has added a bunch of cool features that make filing your income tax return even easier. My favourite is Auto-Fill My Return, which imports your information directly from the CRA.
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