When Julian Shenoy receives his tax refund this year, he plans to save some of it for investments and the rest for travel.
“Everything has been shut down for the last three years, due to the pandemic, etc., so we are likely to spend a large percentage of our leisure time, maybe 50% on investments and the other 50% on vacation.” said Shenoy in a phone interview.
The Toronto-based millennial is “pretty lucky” not to have as much debt as many others his age, and that’s why he’s getting his tax refunds this way. That’s why I plan to use it.
“It’s a little different with more disposable income, but it can be difficult with more spending,” Shenoy added.
With tax season approaching, experts say it’s best to take a good look at your finances before deciding what to do with your tax refund.
“There is no one-size-fits-all solution.
Top of the list of things to consider, Hiscock said, is whether there is debt that needs to be paid off.
“If you have high-interest debt, that’s the first thing you should do to get your tax refund because that debt builds up really quickly and is very costly,” she said.
Next, Hiscock recommends considering employer matching programs for retirement savings, where employers match employee contributions to registered retirement savings plans (RRSPs). It is often an amount per dollar, up to a certain amount, or up to a certain percentage of an employee’s salary.
“Employer matching programs are free and many people miss the opportunity, so the next step is to make sure you are getting the most out of the matching program,” she says. said.
Finally, Hiscock should consider directing funds to RRSPs, Tax Free Savings Accounts (TFSAs), or a new type of registered account, the First Home Savings Account (FHSA), which allows people to save for their first home. I said yes. It’s tax-free up to a certain limit and is available this month (be sure to ask, as not all financial institutions are rolling out the service yet).
If you earn less than $50,000 a year and have limited ability to invest, she recommends setting aside the money in TFSA.
If you’re making $50,000 or more, put your money in the RRSP or FHSA, depending on whether you meet the definition of a first-time homebuyer set by the federal government and “which is most beneficial to your situation.” You should consider that, said Hiscock.
Diversification and consistency are the keys to long-term investment success, she added.
“We would like to see a well-diversified portfolio,” Hiscock said.
Receiving a tax refund may be exciting, but Hiscock is wary of impulse buys, instead perhaps setting aside a small portion of it for personal enjoyment and the rest for debt repayments, investments, etc. We suggest setting aside them for more responsible financial planning.
“Of course, there are practical things, but there are also things about making yourself happy and enjoying life, and I think you need to find a good balance there.
Canadian Western Bank Personal Banking Account Manager Natasha Jarlig offered similar advice to Canadians considering how to get their tax refunds.
“This is definitely not one-size-fits-all advice. It’s really based on personal circumstances,” she said. increase.”
Those with debt, especially high-interest debt, need to pay it off early so they can regain control of their finances, Jahrig said.
For those who don’t have a lot of debt, create an emergency fund with tax refunds or pay a TFSA, RRSP, or An unregistered investment, she said.
Unregistered accounts are taxable investment accounts offered by Canadian banks and financial service providers. They allow you to invest an unlimited amount of money in a series of investments and are useful if you run out of TFSA or RRSP.
If you’re unsure about what to do with your refund, or want personalized advice from an expert, you should consult a certified financial planner, trusted financial advisor or accountant, Hiscock and Jahrig say. . doing your taxes
“Building a relationship with a professional is very important, ensuring that they can provide you with what is best for you,” Jahrig said.
You can also take advantage of free online resources such as getsmarteraboutmoney.ca, which Mr. Hiscock said “covers well” all areas of financial planning.
Overall, experts stressed that it’s worth considering your options carefully when seeking a tax refund.
“If you think well and think strategically, you will have the upper hand in the long run,” says Hiscock.
This report by The Canadian Press was first published on April 11, 2023.
