D. Smith: Make the best use of a tax refund

First, always pay down bad debt with high interest rates being charged to you.

Congratulations—you received a tax refund.

The good news is you now have money you did not have yesterday; and the reality of your tax refund is your own money is now being returned to you.

You loaned the government your hard earned money for the past 12 months—free of charge—and they are now giving it back to you after you filed your tax return.

What should you do with your tax refund in 2013?

Always pay down bad debt with high interest rates being charged to you.

Bad debt can be considered as any type of credit card debt charging you interest rates of example 9%, 18% or 28%.

Paying down your bad debt with a tax refund provides you with a guaranteed after tax rate of return that you are currently paying on high interest debt.

This is by far the No. 1 best choice—though it may not be your first choice because it is not a lot of fun. But you will thank yourself in the future.

Have an emergency fund. If your current emergency fund is a high interest credit card, find a better plan than that.

You should have several months of income set aside—or have the ability to borrow at a low interest rate—example being three to four per cent if and when an emergency occurs—and these happen regularly to most people.

Review your life insurance and mortgage insurance costs now.

If you have mortgage insurance covering your mortgage or line of credit. Talk to a life insurance broker to save money and provide an added layer of financial security for your family with life insurance.

A tax refund can help to cover the cost of premiums on a life insurance policy.

Providing for dependants, covering taxes on death, paying off debts, or equalizing an estate are all reasons for purchasing life insurance.

Contribute to your RRSP. If you have room to contribute to your registered retirement savings plan, this will provide additional tax savings for next year.

Next to paying down bad debt, setting aside money for retirement is your next best option.

If you have no debt or minimal debt, contribute to your TFSA.

This allows you to benefit from tax free investing. Many Canadian’s are receiving minimal interest on their TFSA—which results in very little value to the consumer.

Consider building other forms of equity with your tax refund. Real estate and private business ownership can increase our equity over our lifetime.

A tax refund can contribute to a larger pool of money to build other types of equity.

Contribute to an RESP.  If you love free money from the government, set aside money for the education of a child or grandchild with your tax refund.

These contributions will receive Canada Education Savings Grants (CESGs) from the government. RESP contributions are not tax deductible but will assist children and grandchildren in paying for post-secondary education and will attract the CESG maximums.

Give your money away to your intended (family) heirs now. Gifting your money now allows you to reduce the size of your estate at the time of your death, and reduces taxes and probate fees at that time.

The biggest advantage is seeing the gift being enjoyed now during your lifetime.

Do you deserve a treat? Then spend the money. When it comes to a tax refund, many people like this option the best.

Spending your tax refund may be suitable where you have no bad debt and your retirement savings are in good shape.

Kelowna Capital News

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A mural outside of Christman Plumbing & Heating Ltd in Rutland. (Amandalina Letterio - Capital News)
Changes on the horizon for Rutland

Taller buildings, more amenities expected as city focuses growth around urban cores, including Rutland

Photo: pixabay.com
Morning Start: Why do dogs like squeaky toys?

Your morning start for Tuesday, April 20, 2021

A strange odour at a West Kelowna apartment building prompted the evacuation of 150 residents on Sunday morning, April 18. (Aaron Hemens - Capital News)
‘Do not occupy’ order lifted, residents of West Kelowna apartment allowed to return home

The building was evacuated early Sunday morning due to a strange smell

People are shown at a COVID-19 vaccination site in Montreal, Sunday, April 18, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
211 new COVID-19 cases in Interior Health over the weekend

Currently, there are 875 active cases of the virus in the region

Vernon Search and Rescue’s helicopter team was asked to be on standby to rescue a missing hiker in Naramata. (Air Rescue One/VSAR photo)
Lost hiker rescued in Okanagan Mountain Park

COSAR, PENSAR, and VSAR worked together to rescue a hiker in Okanagan Mountain Park

Volunteers at the West Kelowna Salvation Army were celebrated with a special treat on Monday. (Twila Amato - Black Press Media)
Central Okanagan community organizations celebrate volunteers

It’s Volunteer Appreciation Week and non-profits are highlighting the people who put in the work

Jasmyn Yakura’s 2004 Chevy Aveo ended up going off Cosens Bay Road Sunday, April 18, with her behind the wheel, and coming to rest down a steep cliff. Yakura suffered only minor injuries. She was helped back to the road by a friend travelling behind her when the car left the road. (Yakura family photo)
North Okanagan driver credits seatbelt with saving life

Jasmyn Yakura, 17, survived after car went off Cosens Bay Road over a cliff, flipping ‘five or six times or more’

University of Victoria rowing coach Barney Williams is photographed in the stands during the Greater Victoria Invitational at CARSA Performance Gym at the University of Victoria in Victoria, B.C., on Friday, November 29, 2019. The University of Victoria says Williams has resigned effective immediately. (THE CANADIAN PRESS/Chad Hipolito)
University of Victoria women’s rowing coach resigns by mutual agreement

Lawsuit filed last summer accused Barney Williams of verbal abuse

Former B.C. premier Christy Clark. (Black Press Media files)
Former B.C. premier to testify at money laundering hearing today

Attorney General David Eby has been added to the witness list as well

Selina Robinson is shown in Coquitlam, B.C., on Friday November 17, 2017. British Columbia’s finance minister says her professional training as a family therapist helped her develop the New Democrat government’s first budget during the COVID-19 pandemic, which she will table Tuesday. THE CANADIAN PRESS/Darryl Dyck
B.C. to table budget that’s expected to deal with COVID-19 pandemic and beyond

Robinson released a fiscal update last December that said the impact of the pandemic on B.C.’s economy was uncertain

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Paramedic Matthew Schlatter of Victoria is living a fuller life today due to the double lung transplant he received in 2019. He encourages B.C. residents to register as an organ donor and let their families know their wishes. (Instagram/Matthew Schlatter)
B.C. man living a full, active life after double-lung transplant

Matt Schlatter encourages people to register as an organ donor to help others live

(Photo by Mojpe/Pixabay)
Canadian kids extracting record amounts from Tooth Fairy

Our neighbours in the U.S. receive slightly less from Tooth Fairy visits

Most Read