5 Wise Ways to Use Your Tax Refund

We’ve filed our taxes, so what now? Every year nearly 19 million Canadians who file their taxes will get a refund.1 What are you going to do with your tax refund, Canada? Let’s look at some options to make that money work for you.

How long does it take to get a tax refund?

Before you finalize your plans for your refund, you may want to know how long it’ll take to get it. According to the Canada Revenue Agency (CRA), how you file makes a difference.

File online

When you file electronically online, your refund should reach you in about two weeks.

File by mail

When you file by paper return, your refund will take around eight weeks.

Living outside Canada?

If you’re not living in Canada and file a non-resident personal income tax return, it could take up to 16 weeks for your refund.

Start an emergency fund

One-third of Canadians don’t have enough funds set aside to cover 3 months of expenses.2 The reasons for lack of an emergency fund could span from living paycheque to paycheque to just not having an interest in saving. But an emergency fund could help if the unexpected happens like job loss, sickness, car problems, or immediate home repairs.

The following are a few tips on how to start your emergency fund:

Just get started

Whether your refund is large or small, you could stash all or part of it away while earning interest. Get the ball rolling and add consistently to the pot; weekly, bi-weekly, or monthly. Whatever is possible in your situation.

Find the right account

Open an interest-earning savings account. Depending on your funds, your options could include a standard savings account or a higher interest-earning savings account.

Close, but not too close

Make sure your funds stay liquid in case an emergency arises, but not too accessible that you’re tempted to withdraw for non-emergencies.

Contribute to a savings account

In a similar vein as an emergency fund, you can start a savings account. It can be a Plain Jane savings account or a higher-interest savings account. You can open one online or in person. The point is that you’re getting a return or earning interest on your money. Different accounts will have varying policies, benefits, interest rates, and restrictions. So read carefully and ask your financial institution questions if you don’t understand the details.

Here are some accounts to investigate:

Savings account

Research which savings account could best benefit you! Some accounts offer no fees or minimum balances (again, always read the fine print), and ones that require a minimum balance and a certain number of withdrawals or deposits. Choose carefully. And remember, if there’s a small amount of funds or a larger sum, you’ll still be earning interest. So, this could be a starting point.

Higher interest-earning savings account

This type of account is like a regular savings account, but it earns a higher interest rate. However, it may have different minimum requirements or rules. Again, get clear details from your bank for specifics.

Pay down debt

Most of us have some debt. According to a 2019 survey, 73% of Canadians have outstanding debt or had a Payday Loan in the prior 12 months.2 Credit cards, personal loans, or even your mortgage could use an extra payment if you have the funds.

Benefits to lowering your debt include:

Pay less interest

Less debt means paying less interest on your balance.

High-interest debt

Pay toward the high-interest loan so you can pay it off in full sooner and with less interest accrued.

Long-term loans

Make an extra principal payment to pay down the main amount of your loan (not interest). In turn, you will be charged less interest (because of the smaller principal amount) and maybe pay off your loan more quickly.

Invest in yourself

Would you like to grow in your education and job skills? Your time is valuable, and so is your money. An online certificate program might be beneficial so you can build special skills. This may be the opportunity you’ve been waiting for. Some options include online education or in-person.

Here are a couple of choices to look at:

ICS Canada Certificate Programs

https://www.icslearn.ca/career-certificates/programs

LinkedIn Certifications Prep and Continuing Education

https://learning.linkedin.com/certification-and-continuing-education-programs

Begin or add to a retirement account

If you haven’t started a retirement account or contributed to it in a while, here’s a great opportunity to do so.

Consider opening or adding to an account:

Registered Retirement Savings plan (RRSP)

A Registered Retirement Savings Plan is a common retirement program you set up and is registered with the Canadian government. You and your spouse or common-law partner can add to the plan. There are several benefits to explore.

Tax-free savings account (TFSA)

A Tax-Free Savings Account is a savings program for people 18 years old or older with a valid social insurance number. With this account, they’re able to save money tax-free. We encourage you to read the details of this savings account.

Give your tax refund a purpose

Not everyone has the option to figure out what they want to do with their tax refund. Some of us already know where it’s going as a necessity. But if you can save, invest, pay off debt, or even grow in education, why not do it?