It's that time of year again — tax time.  Many Canadians have recently completed filing their returns. For those who have received or expect a refund, the first instinct may be to make a fun or spontaneous purchase. Instead, this is a great opportunity to consider an alternative approach that might have an even bigger payoff.

Here are five ways you and your family can plan to spend wisely when it comes to your tax refund.  As the 2024 tax deadline is April 30, 2024, if you haven't completed your taxes yet, consider reading more about the process, benefits, what’s new this year and more on the Government of Canada website.

1. Use your refund to pay down debt.  If you have a $1,000 balance on a credit card with a 20% interest rate, and you pay it off in full with your tax refund, you'll save $200 over the course of the year, freeing up room in your regular monthly budget.
    
2. Invest in a strong financial future.  Let your refund work for you by investing in your future.  Contributing to a Registered Retirement Savings Plan (RRSP) is a win-win; you'll save for retirement and also earn tax credits to be applied to next year's tax return.  If you'd prefer to invest your refund while keeping it accessible for a major purchase or life's little emergencies, consider opening or further contributing to an existing Tax-Free Savings Account (TFSA). If you have children or grandchildren and if your own retirement plan is up to date, you may want to consider contributing to a Registered Education Savings Plan (RESP). 
    
3. Make a lump sum payment on your mortgage or loan.  True or False: Making the equivalent of one month’s mortgage payment as a lump sum means you will pay off your home one month faster...  False!  Lump sum payments are in addition to your regularly scheduled payment, meaning the entire lump sum payment amount is applied to the principal amount owing on your mortgage.  This can translate to saving thousands of dollars over your amortization period and even reduce it by several months, not one. Learn more about efficiently paying off your mortgage.
    
4. Address "back burner" items.  Repairs, upgrades, maintenance and proactive purchases for your home or vehicle can add up.  If there's something on the horizon (heat pump, summer tires, a backyard oasis), consider putting your refund into a high interest savings account until you're ready to buy.
    
5. Support the local economy.  If you are planning to make a purchase or craving your favourite restaurant meal, consider spending some of your refund at a local business. This gives the double benefit of giving you the product you wanted but also supporting someone in your community.

At the end of the day, you may decide that a spontaneous or exciting purchase takes priority when compared to the list above. It is important to take the time to evaluate your circumstances and your finances before making a decision.  If you’re feeling unsure about your finances or would like to discuss your options with a member of the CUA team, we’re here to help.  Let’s talk.

Revised April 4, 2024