Money Matters

Using Your Tax Refund to Improve Your Financial Outlook

Expecting a Tax Refund?

By Elizabeth Summers

If you are expecting a tax refund this year, then you should consider the following strategies to help you improve your financial well-being.

Pay Down Debt
If you have high-interest debts, consider eliminating or reducing them by allocating some or all of yourrefund to debt reduction. Compare the rate of interest you are paying on your debt to what you are earning on your investments: if you’re paying more interest than you’re earning, it could make sense to reduce that debt. If so, pay off the most expensive debt (the one with the highest interest rate and that is not tax deductible) first. And if you decided to take an RSP loan, consider putting a payment against that loan to reduce your interest cost.

Mortgage Payment
Consider a lump-sum payment to reduce your mortgage and pay it off sooner. Most mortgages allow for some type of pre-payment option, but terms and conditions of individual mortgages vary.

TaxRefund_ArticleEducation Savings
Contributions to a Registered Education Savings Plan (RESP) for your children (or for a family member’s child) can go a long way towards paying for a post-secondary education. Your RESP may qualify for a Canada Education Savings Grant (CESG) equal to 20% of your annual contributions (up to $400).

Emergency Fund
Everyone needs some cash in case of an emergency or to meet unexpected expenses (new roof, auto accident, or in the event of a job loss). You should try to set aside an amount equal to three- to six-months’ pay.

RSP
Avoid the rush of next year’s RSP contribution deadline. Get a head start by taking your refund and putting it directly into your RSP.

This article was prepared for Elizabeth Summers, who is a Financial Planner with TD Waterhouse Financial Planning, a division of TD Waterhouse Canada Inc., a subsidiary of The Toronto-Dominion Bank. The information contained herein has been provided by TD Waterhouse Financial Planning and is for information purposes only. The information has been drawn from sources believed to be reliable. Where such statements are based in whole or in part on information provided by third parties, they are not guaranteed to be accurate or complete. The information does not provide financial, legal, tax or investment advice. Particular investment or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. TD Waterhouse Financial Planning, The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

TD Waterhouse Canada Inc. – Member Canadian Investor Protection Fund.
TD Waterhouse is a trade-mark of The Toronto-Dominion Bank, used under license.

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