HEALTH - Consolidated Credit helps you spend your...
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Apr 17, 2014  |  Vote 0    0

HEALTH - Consolidated Credit helps you spend your tax refund

By Jeffrey Schwartz

If you are like most Canadians, there is a good chance you have already filed your 2013 income taxes, and are patiently awaiting the arrival of this year’s tax refund.  And with the average refund totaling about $1,600, you are probably contemplating all the things you plan to do with this extra cash.

It is perfectly normal to get excited about a potential “windfall” of cash and to make a mental list of all the ways you plan to spend that money. But this is typically done based on the misconception your refund is free money. The truth is your tax return is really part of your earned income.

Simply put, it is the government’s repayment of a no-interest loan you were forced to make all year.
That is why we often advise clients to think wisely when it comes to their tax refund. While I understand the temptation to splurge, there may be several other options that will be far more rewarding in the long term.

Instead of rushing out to spend your refund right away, consider one of these alternatives to a shopping spree:

Knock Down Your Debt
The best thing you can do for your financial well-being is to dedicate your 2013 tax refund to knocking down your debt, particularly your high-interest and unsecured debts. Starting with your highest interest loans will offer the greatest long-term financial relief, and paying off your credit card and other unsecured debts will help create your healthy financial future.

Make a Tax-Free Investment
Consider using that tax refund to get started on, or to top up your Tax Free Savings Account. You are permitted to contribute $5,500 each year to this account and pay no tax on any growth. And, it’s an excellent tool to save for a short or long-term goal like a new house or a dream vacation

Save for the Future
Beat the rush to next year’s RRSP deadline by investing your return today. Not only will you avoid the pressure of making a last-minute contribution, but that money also has an extra year of potential growth.

Invest in Your Kids
Education is one of the biggest expenses parents can face, with the average university degree costing more than $5,500 a year in tuition alone. To help offset this future expense, consider investing in a Registered Education Savings Plan for your kids. Not only will you be saving for a future expense, the government will also contribute up to $500 a year to your child’s education.

Pay Down the Big One
There is no bigger debt than the one that keeps a roof over your head. If unsecured debt is not a problem and you are comfortable in your retirement savings, consider making a lump sum principal payment toward your mortgage. By putting these extra funds toward your biggest debt, you can potentially find yourself mortgage free much sooner.

Save for a Rainy Day
If you don’t have an emergency fund, than now is the time to start saving for a rainy day. Financial experts agree that the average household needs enough money to cover three to six months worth of expenses in case of job loss or reduction of income. Dedicating your tax refund to an emergency fund is an excellent way to get started on your financial safety net.  

Be Frivolous and Frugal
If you just can’t help but spend your refund on a frivolous or over-the-top item, then consider it as a part of your bigger financial plan. Treat that pleasure purchase as a reward for using at least part of your refund to improve your overall financial security.

Jeffrey Schwartz is the executive director of Consolidated Credit Counseling Services of Canada and president of the Credit Association of Greater Toronto. Consolidated Credit is a national non-profit credit counselling organization that teaches consumers about personal finance. Visit for more information on credit counselling, debt management and budgeting.


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(1) Comment

By Jim | JUNE 25, 2014 03:05 PM
I always try to save my tax refund. It's definitely not "free" money
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