And 5 things to avoid.
You’re getting a tax refund. Great news!
Before you receive the money, it’s a good idea to make a plan.
I don’t know about you, but it’s not often that I get a large lump of money that isn’t already earmarked for rent, or other bill payments. The possibilities are exciting and it is easy to find ways to spend it.
Because this is found money, you may be tempted to go to the mall and blow it all in a big shopping spree. If you want to make it count, plan how you plan to use it so you don’t have it all spent before you receive it.
What not to do.
- Don’t spend the money until it arrives. It’s not yours until the government assesses your return and sends you the money.
- Don’t split it into a lot of small purchases or let it slip into your regular spending because it will disappear before you know it.
- Don’t lend it. It’s my experience that when you lend money to friends or family, they often don’t pay it back.
- Don’t overspend. An example would be if you buy a new car because you have a $500 refund or if you go on a vacation that costs more than the refund.
- Don’t treat your friends to dinner or drinks out. If you are feeling extravagant, host a dinner at home. It will be less expensive and you can show off your cooking skills.
7 Things to Do with the Refund
- Boost your emergency fund. This is always my go-to when I have extra money. If you don’t have at least 3 months expenses set aside for emergencies, consider putting your refund to good use here.
- Pay down credit card debt. If you are carrying a balance on your credit card, it’s costing you tons of interest every month. This is a chance to reboot and get out from under this debt load.
- Are you behind on any other debts? Make it a priority to pay them off and stay on track for this new year.
- Fund a large item that you really need. If you desperately need new tools for work, or winter tires for your car, this is a great time to get them.
- Make an extra payment on your mortgage or car loan. This is not a sexy option but your future self will thank you.
- Invest in yourself. Take a college course or do the upgrading that you have been considering.
- Spend some of the money on yourself. If you’ve been dreaming about a holiday, consider using some of your refund to do that. Be careful not to go overboard and make the mistake of spending $2000 when your refund is only $500. Spending your refund is only an option to consider if your finances are in order and you have a savings plan in place.
- BONUS TIP ** Put it in your TFSA (Tax Free Savings Account), or look into a Roth IRA.
Are you getting a refund this year? What do you plan to do with it?
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