It’s tax season, baby!
Around this time of year, there’s always some back and forth mind games going on thinking about what you should do with your tax return.
Should you save it? Should you invest it? But what if there’s a jacket you’ve been wanting to buy for months now? How are you supposed to choose what to do with the money?
Here, I’m going to be walking through my thought process of what five things I would personally do with my tax return. Don’t worry, at the end I share exactly what I’m going to be doing with my tax return money.
Hopefully you’ll be able to decide what you should do with your tax return by realizing what option would bring the most value to you right now.
1. Spend On Necessities
First things first, it is a crazy time right now and you might need to use this money for essentials.
Do you need to spend it on things like groceries or rent? Maybe you need to put the money towards your utilities now that your hydro bill has skyrocketed from having to stay at home all day long.
Make sure that you have all of your needs covered before spending this extra money elsewhere. If you’re not sure how much money is required for you to cover your basic needs, check out How To Start Budgeting to help get you started.
2. Save
If you’ve already got your necessities covered with your regular monthly income and spending, you could consider putting your tax return money away for the near(ish) future.
Do you have a dedicated emergency fund? If you do, is there still room to beef it up to meet the recommended 3-6 months of living expenses? If you don’t, now could be a great time to start one.
Maybe you’re always surprised when your property tax bill arrives in the mail and you scramble to find the money every year. Picture this: you save your tax return in a savings account dedicated to reoccurring annual expenses and when the bill comes in the mail you have the money sitting there ready to use. Amazing, right?
If you don’t yet have a high interest savings account (2.0%+ interest), check out EQ Bank. This is the bank I have personally been using for almost two years now and I recommend them to everyone! You can have four other accounts under your main account so you can actually compartmentalize your savings all in one place. It’s truly life changing. To learn more, check out my article How I Use My Savings Account.
You could also start saving for a vacation to go on once this is all over or start saving for that new camera you’ve been dreaming of. Take a moment to think about what you might want to start or continue saving up for and boost yourself towards that goal with the money from your tax return.
3. Pay Off Debt
If you feel comfortable with your income and your emergency fund at the moment, you could start chipping away at any debts. Student loan? Car loan? Take your pick and make it happen!
As of March 30th, Canadian federal student loan payments were all automatically suspended until September 30th. This means that no payments are required until then but this also means that no interest is being charged right now. If you’re in the right position to pay down some of your student loan debt, now would be a great time to attack that principal amount and really kick start your debt repayment.
You’ve got this!
4. Invest
Whether this means actually investing in the stock market or rather investing in yourself in other ways, maybe you want to use this extra lump sum to help future you.
This could mean investing in a course to help you gain a skill, investing into your downpayment fund or your retirement account or even investing in a new business idea. If it brings value to your life, it’s never a waste of money.
5. Spend On Wants
If you’ve thought about it and are content with your current savings and investments, spend it on something you’ve been wanting! Treat yoself.
You could also consider donating a portion of it to give back to your community. There are a lot of people that could use a little bit of help right now!
This year I will be putting my entire tax return into savings. I did the same in 2019, as well. Why? Let me tell you!
While I do currently have a full-time job, anything can happen. I am happy with my current investment contributions and I personally feel more comfortable having the cash in savings right now.
I also might be heading back to school in September and I feel that now is a great opportunity to add funds to my emergency savings. Having easily accessible cash on hand is what will help me sleep better at night so that is what I am going to do!
What will you do with your tax return?
Disclaimer: I am not a certified financial planner or investment advisor. The ideas posted on this website are my own opinions on how I manage my personal finances. The content is specifically for educational and informational purposes and is not considered professional financial advice.
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