You know that warm, welcoming feeling when a tax refund arrives in your bank account? It’s like finding extra money in your pocket, but on a bigger scale. One of the first things you might think about is how you would like to spend it.
Instead of going shopping, think about other possibilities for using that cash. A tax refund can offer opportunities to support your financial goals, create a safety net, or even fund meaningful experiences. Your refund is an opportunity to get creative and drive lasting, meaningful results.
To help you get started, we’ve put together a list of seven smart ways to embrace your inner saver (or smart spender) and make your money work harder for you.
1. Pay Down High-Interest Debt
A common way to use a tax refund is to reduce debt, particularly high-interest debt. Reducing credit card balances or personal loans can help lower interest costs over time.
2. Create An Emergency Fund
With the rising cost of living, having a financial safety net is essential. Many of us don’t have the funds available when unexpected expenses arise, such as:
- Car repairs
- Home maintenance
- Unexpected travel
- Family emergencies
- Emergency medical care
In fact, one in four Canadians can’t cover an unplanned $500 emergency. This means that even minor emergencies can send them into panic mode and force them to scramble for solutions. Without a backup plan, small financial setbacks can lead to bigger problems down the line.
Setting aside funds for unexpected expenses can help make stressful situations easier to handle.
Consider whether a tax-free savings account (TFSA) might be a good option for building your emergency fund, as contributions can grow tax-free. Plus, you'll build your emergency fund faster and have cash available when you need it most.
3. Invest in a Registered Retirement Savings Plan
A recent survey by IG Wealth Management found that 42% of Canadians do not have a retirement plan. However, Canadian retirees face ongoing and often unexpected expenses that they aren't prepared for. Some potential risks include:
- Poorly performing investments
- Underestimated longevity
- Insufficient health benefits
- Insufficient financial benefits
- Rising housing costs
Contributing to a registered retirement savings plan (RRSP) can be a way to save for retirement and enjoy potential tax advantages. An RRSP is a savings plan approved by the Canadian federal government that you can use to save for retirement. When you put money into an RRSP, your contributions are "tax-advantaged," meaning they won't be taxed in the year you contribute.
An RRSP offers features like tax-deferred growth and potential tax deductions, which may help your savings grow more efficiently. In these ways, setting up an RRSP is like giving your future self a more comfortable, worry-free retirement while enjoying some benefits today.
4. Upgrade Your Home with Energy-Efficient Improvements
Looking to cut down on your utility bills and make your home more comfortable year-round? Consider using your tax refund to upgrade your home. Some easy energy-efficient improvements you can make include:
- Better insulation
- LED lighting
- A smart thermostat
- Roofing membrane
- Basement wall waterproofing
- New ENERGY STAR doors, windows, or sliding glass
Many of these improvements might even qualify for government rebates or incentives to help with costs! Plus, efficiencies from these upgrades mean they pay for themselves over time while boosting your home’s value—a safe and smart way to invest.
5. Finance Your Professional Development
In today’s changing job market and with new technologies emerging, investing in professional development can be a meaningful way to enhance your skills and explore career opportunities. Whether you're adding new skills or improving the ones you already have, investing in yourself can lead to better opportunities and greater job satisfaction.
Many courses now provide more flexibility, allowing you to study at your own pace and in your own space, while equipping you with the skills you need for personal growth and a competitive advantage.
6. Take a Budget-Friendly Family Vacation
We all need a break from work occasionally, and a family vacation is a great way to de-stress and recharge. Using your tax refund for a budget-friendly holiday helps you avoid overspending while making the most of your refund, allowing you to relax and enjoy your time off.
Creating a smart holiday budget helps you avoid using your savings or accruing debt while keeping your financial goals on track. Holidays also offer health benefits, like reducing stress, strengthening family bonds, and recharging your energy for when you return. Depending on your circumstances, certain travel-related expenses might qualify for tax benefits. Be sure to consult with a tax professional for details.
7. Start a Side Hustle
If you’ve ever thought about starting your own business, using your tax refund to launch a side hustle is a great way to increase your income. Starting a small business or side hustle may offer opportunities for eligible tax benefits or deductions, such as:
- Mileage for business-related car use
- Home office expenses
- Necessary business software and subscriptions
- Meals and entertainment for business purposes
It’s a good idea to review these options with a tax advisor.
Side hustles offer additional benefits too, allowing you to explore your passions, dreams, or hobbies, with the possibility of growing them into something bigger if your business idea takes off. Plus, having a side business can provide extra funds to help pay off debt, build your savings and investments, save for something specific, or enjoy more financial freedom.
Transform Your Tax Refund into Opportunities
The next time you receive a tax refund, get creative: explore new ways to use that money for your advantage. By selecting one or more of the options mentioned in this article, you're not only maximizing the value of your refund—you’re transforming it into a valuable resource for long-term benefits. For additional resources or guidance, consider reaching out to a financial professional.