Spring has sprung, and with it comes fresh flowers, chirping birds and tax returns.
Many of us are expecting to walk away a little richer this season – out of all filed returns from the last tax year, the CRA published that 59 per cent resulted in an average return amount of $1,682 – and although a new iPhone or a shopping spree sound like a way better way to spending your return, here’s a smarter idea: Invest it!
We tend to fall into a trap of considering our tax returns to be ‘found money’ – money that was previously unaccounted for but we’ve now stumbled upon as a bonus. Because we see it as a bonus, many feel like it can be spent more frivolously than money already budgeted for bills, housing or food.
Whether you’re spending your tax return, or dipping into your savings, spending $1,000+ reduces your net worth by that amount regardless of where it came from.
So, instead of that sweet new pair of shoes, think about following these tips from the financial experts at ModernAdvisor. Also known as a robo-advisor or online portfolio manager, their mission is simple: To give Canadians access to high quality, low-cost investment advice – regardless of their net worth.
Pay off your high-interest debt
The number one way to use your tax return is to rid yourself of debt. Pay off high-interest credit card bills, loans or any other debt that is charging high rates of interest. A poll done for BMO shows that in recent years, 40 per cent of Canadians used their tax refunds (or a portion of them) to reduce their debt. This is compared to the 25 per cent who put their money in savings or investments, 14 per cent towards travel and leisure and the nine per cent used it to pay down their mortgage.
Build your emergency fund
Use your tax return to start an emergency fund or bulk up your savings in an existing fund. You never know when a hot water tank will burst or your car will break down. It’s important to have funds set aside that are easily accessible. Ideally, you want to have enough in an emergency fund to cover your living expenses for up to six months.
A great way to set aside money is a High Interest Savings Account (HISA). HISAs offer interest rates that are above what regular savings accounts typically offer. You can get a HISA at most banks, so be sure to shop around for the best interest rate. In some cases, you can get rates as high as 1.85%. Make sure you do your research – Highinterestsavings.ca is a good place to start.
Invest in your future
Finally, think ahead. Invest in your future, whether it’s a TFSA you’re using for a down payment, your RRSP for retirement, or an RESP for your children’s education. There are many different options for Canadians to make smart investments. When considering your investing options, make sure you are investing wisely and not spending too much money on high-fees or portfolios that don’t give you best bang for your buck.
Did you know that with fees substantially lower than the banks, ModernAdvisor can help you retire 7 years earlier? If you need help planning out your next move, the team of modern entrepreneurs, engineers and financial gurus behind ModernAdvisor are on hand to help with any portfolio. Forget the fees, appointments and confusing financial jargon. ModernAdvisor’s on-demand platform is easy to use and their low fees mean you’re keeping more of your money, without sacrificing returns. You can stay up-to-date on all your investing activity with the easy-to-read dashboard, accessible from any of your devices.
The best part? ModernAdvisor offers a 30-day free trial with an account funded by them for $1000. If you decide to invest, you keep the earnings!
Sign up for your free trial today at https://www.modernadvisor.ca/springboard.