5 Tips for a tax return that pays off... for a long time!

Each spring brings its own set of certainties: the maples are sinking, the Toronto Maple Leafs are eliminated in the first round of the playoffs (we apologize to the fans) and the provincial and federal governments are handing out the first tax returns of the season!

So what do you do with your tax return? While in the past it was common to use your refund as a post-tax year reward, thæe current economic climate calls for a more prudent, less playful, but more rewarding approach in the long run!  

Here are 5 useful and reasonable ideas for using your tax return. 

Pay down debt

High-rate debt, such as credit card debt or personal loans, can quickly throw a budget off balance. A tax refund - regardless of the amount - is a perfect opportunity to give yourself some breathing room. By reducing your debt balance, you save on the amount of interest you have to pay back. It's a win-win situation. 

Build an emergency fund

It's a good idea to have an amount available at all times to deal with unforeseen situations. This is especially true when the economy is shaky. A well-stocked emergency fund can cover approximately 2 to 5 months of current expenses: mortgage (or rent), car loan, bills, etc. Putting your tax refund into a savings account is a good first step toward building such a fund. 

Investing in education

The Registered Education Savings Plan (RESP) is a very advantageous way to save for your children's (or grandchildren's) education. Each amount contributed to this program is subject to a very attractive government grant of at least 30% annually, up to a maximum of $7,000. Every dollar invested in an RESP is also tax-sheltered. 

Enhance your savings  

Not only is it possible to invest in an RRSP or a TFSA throughout the year, it is even recommended. The TFSA is a good way to plan a major expense such as renovations, while each new contribution to an RRSP reduces your taxable income for the following tax year. 

Take advantage of it a little

It is recommended that you allocate between 75% and 85% of your tax refund to savings or debt payment, which leaves a small amount for a more fun expense... like a ticket to the first round of the playoffs in Toronto perhaps? 

Happy saving and happy tax returns to all!

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was written, designed and produced by Pierre Dauth, Investment Funds Advisor with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this blog comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.  Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.